MTE mechanical engineering Company has a machine purchased 5 years ago at a cost of BDT 100000.00. Themachine had an expected duration of 10 years at that time. It had no salvage value and was depreciated on a straight-line method. Therefore, its annual depreciation charge was BDT 10000.00 and its present book valueis BDT 30000.00. The financial manager of the company is thinking to purchase a new machine costing BDT 150000.00 including freight and installation charges. The duration life of the new machine is 5 years with a salvage value of BDT 25000.00. The new machine will save BDT 40000.00 per year. If the new machine is purchased, the old one can be sold for BDT 15000.00. The corporate tax rate is 40% and the cost of capital is 12 %. Purchasing a new machine would require Tk. 15000.00as working capital at the beginning of the year which could be realized at the end of the 5th year. The new machine will be depreciated on a straight-line basis. Using the NPV method determined should the old be replaced?

MTE mechanical engineering Company has a machine purchased 5 years ago at a cost of BDT 100000.00. Themachine had an expected duration of 10 years at that time. It had no salvage value and was depreciated on a straight-line method. Therefore, its annual depreciation charge was BDT 10000.00 and its present book valueis BDT 30000.00. The financial manager of the company is thinking to purchase a new machine costing BDT 150000.00 including freight and installation charges. The duration life of the new machine is 5 years with a salvage value of BDT 25000.00. The new machine will save BDT 40000.00 per year. If the new machine is purchased, the old one can be sold for BDT 15000.00. The corporate tax rate is 40% and the cost of capital is 12 %. Purchasing a new machine would require Tk. 15000.00as working capital at the beginning of the year which could be realized at the end of the 5th year. The new machine will be depreciated on a straight-line basis. Using the NPV method determined should the old be replaced?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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