User Account

All Pages

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?

Related Discussions:- replacement decision

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

As What is the major value of the weighted cost of capital calculation for the firm?k question #Minimum 100 words accepted#

Acquisition, PFA

PFA

Measuring the behaviour of stock in the estimation window, Measuring the Be...

Measuring the Behaviour of Stock in the Estimation Window and the Event Window As its name implies, the estimation window is used to estimate a model of the stock's returns un

Online assignment, what will be the impact on operating leverage if it is p...

what will be the impact on operating leverage if it is proceeds for additional borrowings

Valuation of firms, I have done most of my work on myfinancelab.com need so...

I have done most of my work on myfinancelab.com need someone to complete the rest. Deadline is this sunday. Can i get help on that?

Corporate restructuring, Corporate restructuring Corporate restructurin...

Corporate restructuring Corporate restructuring entails any fundamental change in a company's business or financial structure, developed to raise the company's value to shareho

Weighted average cost of capital, A tax rate of 20% has been introduced in ...

A tax rate of 20% has been introduced in the Frog Islands Republic. The value of Sun corporation is now 100.000€. Bright Star Co. debt has no changed. The required rate of return t

NPV, The First Bank of Ellicott City has issued perpetual preferred stock w...

The First Bank of Ellicott City has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.65 on this stock. What is the current price of

Level of debt in its capital structure, Weaving Ltd is a medium-sized Mauri...

Weaving Ltd is a medium-sized Mauritian knitwear company. It assembles jumpers and other forms of knitwear clothing. Despite an adverse economic background, Weaving Ltd has been do

Investing, Suppose the dividends for the Seger Corporation over the past si...

Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd