About replacing an old equipment with new one

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Alpha ltd. Is planning about replacing an old equipment with new one. The new equipment will cost £780,000. The new equipment will be depreciated straight-line to zero over its five-year life. The old equipment with no salvage value is also expected to work for 5 years and has a current book value of ££80,000 with a market value of £90,000. The new equipment will save the company £145,000 per year in operating costs but requires an investment of £100,000 in net working capital. If the tax rate is 40% and the required rate of return is 12%, which equipment should the company select.

Reference no: EM131867745

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