Reference no: EM132846515
Question - REPLACEMENT OF FIXED ASSETA machine is being replaced with a new one and the following information is given:
Cost of new machine 90,000
Increase in working capital requirement 10,000
Net proceeds from sale of old machine, including tax benefit on loss 25,000
Cost of immediate repairs on old machine, net of tax effect 6,000
Incremental annual cash returns (for 8 years) arising from replacement 23,000
Required -
1. How much is the net investment?
2. In how many years can it be recovered?
3. With a cost of money equal to 15%, how much should be the net present value from the replacement?
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Compute cost of goods sold
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