replacement decision, Baobab rolling mills owns a lathe machine which was purchased, Corporate Finance

replacement decision, Corporate Finance

Assignment Help:

Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management estimated, and still believes, that the salvage value will be zero at the end of its 15 yrs life. The machine is being depreciated at on a straight line basis, therefore ots annual depreciation charge is sh. 5 million, and its present book value is sh.25 million. The R&D manager reports that a new special purpose machine can be purchased for sh. 120 million(including freight and installation of sh. 10 million and 30 million respectively) which, over itd 5 year life will reduce labour and raw materials usage sufficient to cut operating costs from sh. 70 million to sh. 40 million. It is estimated that the new machine can be sold for sh. 20 million at the end of its life. The old machine actual current market value is sh. 10 million, which is below its sh. 25 million book value. If the new machine were acquired, the old lathe would be sold to another company. Networking capital requirements will increase by sh. 10 million at the time of replacement. The company is in 40% tax bracket and the cost of capital is 12%. The company will maintain the straight basis of depreciating similar machines. Determine the following:
Net cashflows at the time of replacement?
incremental cashflows over the life of the new lathe?
net terminal cashflows at the end of new machines life?
payback period for the replacement decision?
net present value of the new lathe?
the replacement decision internal rate of return?
should the decision to replace be undertaken?

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages

replacement decision, Corporate Finance

Related Discussions:- replacement decision

Explain static theory of capital structure, Question 1: (a) Show the fo...

Endowment, #quOn Completion of her introductory finance course, Kieran was ...

Timed quiz, 20 questions

Cost accounting, As What is the major value of the weighted cost of capital...

Agency issue, you have just been hired as a financial managher of a company...

Assignment 2, created the firm''s pro forma balance sheet for the next fisc...

WACC, WACC calculation

Dividend, dividend theories

Stocks, The stock price of Jenkins Co. is $53. Investors require a 12 perce...

Importance of the dividend policy on the market value, The Directors of Roh...

Write Your Message!

Featured Services

Online Tutoring

Project Development

Exam Preparation

Course Help

Assignment Help

Popular Subjects

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT