replacement decision, Corporate Finance, Corporate Finance

Assignment Help:
#question.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, Corporate Finance

Describe what a firm wants to achieve through pricing, Question: (a) ...

Question: (a) (i) Introduction and development- negative cash flows, low turnover, large overheads due to marketing expenses, marketing mix includes sales promotion.

Calculate the present value and the duration of liabilities, Question: ...

Question: (a) In any year, the rate of interest on funds invested with a given insurance company is independent of the rates on interest in all previous years. Each year th

Determine the tax loss on the sale, Jackson Corporation prepared the follow...

Jackson Corporation prepared the following book income statement for its year ended December 31, 2011: Sales

Analysis, Ask question #Minimum 100 words accepted FIN 610 Milestone One Gu...

Ask question #Minimum 100 words accepted FIN 610 Milestone One Guidelines and Rubric Overview: For this first milestone, which is due in Module Three, you will describe each of the

The credit term "2/45 net 90" indicates, Ask questThe credit term "2/45 net...

Ask questThe credit term "2/45 net 90" indicatesion #Minimum 100 words accepted#

Capital structure, what is the separation theorem? what are majour implicat...

what is the separation theorem? what are majour implications for financial decision making

Net present value of project, Net present value of this project: ...

Net present value of this project: The following I/S is based on the information associated with a new project. Answer the questions. Projected Income Statem

What is the value of the debt and the equity, A firm's assets have a market...

A firm's assets have a market value of $500m; the asset returns have a standard deviation of 25% per year.  The firm is financed with zero coupon debt having a face value of

MBA assignment, I need some ideas or topic for my 8-12 pages semester assig...

I need some ideas or topic for my 8-12 pages semester assignment. Further more tools to solve the assignment. I''m working in an engineering company (in a technical role).

Write Your Message!

Captcha
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!

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