strategic ffinancial mangement
posted by shruti sieth .
XYZ company is contemplating the purchase of a new machinery costing rupees 30000with an expected life of 5 year at the end of which period , it can be solved for rupees 750 thousand in replacement of an old machine purchased 3 years ago for rupees 15000 with an expected life spend of 8 years, the company adopt the system of providing deprecation on machinery on reducing balance method because of the purchase of new machine annual profit before depreciation are expected to increase by rupees 6000. The present market value of the old machinery is rupees 16250 decide whether the company should go ahead with the plan for acquisition of new machinery if:The average tax on income was to be 55%.The average rate of tax on capital gain was to be 40%.The cost of capital to the business was 12%.Present value of 1 rupees at a discount of 12% is .9,.8,.7,.6,.5,.45,.4 for the year 18 respectively.
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