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8 years nilOrABC Ltd. has a machine which has been in operation for 3 years. Its remaininguseful life is 8 years with no salvage value. Its current market value is 200,000.The company is considering a proposal to purchase a new model of machine toreplace the existing machine. The relevant information is given below:Existing Machine New MachineCost of machine3,30,000 10,00,000Estimated life11 years,Salvage value340000Annual output30000 units 775000'unitsSelling price per unit1515Annual operating hours30003000Material cost per unitlabour cost per hour40*70Indirect cash cost per annum50000*65000The company follows the straight line method of depreciation. The corporatetax rate is 30%. ABC Ltd. does not make any investment if it yields less than 12%.Advice ABC Ltd. whether the existing machine should be replaced or not. Ignorecapital gain tax.15 |
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