Question

mong the decisions) 3. CK Company uses the machine for cleaning paling te old ars ago. The initial cost is $300,000. uses the machine for cleaning the furniture. The current machine has purchased since the three years ago. The initial cost is The machine has the useful life 5 years since the date o has the useful life 5 years since the date of purchases. The residual value is $50,000. The Current machine can generate the cash revenue per ye $100,000 and cash operating costs is $60,000 per year. If the company continues to keep or use the current machine, it will have the repairing expense $20,000 at the end of year 4. (remaining useful life of old machine + useful life of new machine) At the end of year 3 of using the old machine, the company decides to purchase the new machine. The new machine's initial cost is $400,000. The new machine required the Working Capital equals to $10,000. It will generate the cash revenue per year is $200,000 and cash operating costs is $100,000 per year. The new machine's residual value is $40,000. The new machine's useful life is 6 years. The company uses the straight line method in calculation of depreciation. If the new machine is purchased, the current (old) machine can be sold at $160,000. Tax Rate is 30%. Cost of Capital is 10%. At the end of useful life of new machine, the recovery WC is 80% of initial WC required. Required: 1.Calculate NPV to decide whether the company purchases the new machine and sold the old machine or not 2.Calculate NPV to decide whether the company purchases the new machine and keep the old machine as a reserve machine or not

Answer 1

1/1 Calculation of flows when it By made new mashine cost (1900) (+) Savings in big portal = 4,516 Tôm x $ak ]* Fệt" vay ) 86-XC+) G+) Cash proceeds on sale of e) Swings in paip 30*XPF ) Total of - 2,77,2024) 19,0 Calculation of food and now achieve Pens (1907) pemilist upecalon - 69000 TO (- x@3. 25.080, ( se 54 80 ego Increase in Inflow by purchasing new machinery is 52000 -39,00 = 31000 = 31000X PVIAF (6yrs; 10%) 3100X4355 = 135013 npr calculation Prof cash inflows-prof cash out flows = 1,35013 - 2,27302 = (92,238) Npv is negative so, It is better not to go for new machine