User Account

All Pages

replacement decision, Corporate Finance

Assignment Help:
Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management estimated, and still believes, that the salvage value will be zero at the end of its 15 yrs life. The machine is being depreciated at on a straight line basis, therefore ots annual depreciation charge is sh. 5 million, and its present book value is sh.25 million. The R&D manager reports that a new special purpose machine can be purchased for sh. 120 million(including freight and installation of sh. 10 million and 30 million respectively) which, over itd 5 year life will reduce labour and raw materials usage sufficient to cut operating costs from sh. 70 million to sh. 40 million. It is estimated that the new machine can be sold for sh. 20 million at the end of its life. The old machine actual current market value is sh. 10 million, which is below its sh. 25 million book value. If the new machine were acquired, the old lathe would be sold to another company. Networking capital requirements will increase by sh. 10 million at the time of replacement. The company is in 40% tax bracket and the cost of capital is 12%. The company will maintain the straight basis of depreciating similar machines. Determine the following:
Net cashflows at the time of replacement?
incremental cashflows over the life of the new lathe?
net terminal cashflows at the end of new machines life?
payback period for the replacement decision?
net present value of the new lathe?
the replacement decision internal rate of return?
should the decision to replace be undertaken?

Related Discussions:- replacement decision

Valuation, Hello, What are the similarities and differences between project...

Hello, What are the similarities and differences between project valuation and firm valuation. For example, using DCF model, by forecasting free cash flow, weighted average cost of

How do mergers affect small businesses?, How do mergers affect small busine...

How do mergers affect small businesses? A: According to a recent study by Federal Reserve and Wharton Financial Institutions Center economists, not a great deal. Their analysis

Federalism , Question 1 : The history of federalism can be broken down into...

Question 1 : The history of federalism can be broken down into three (4 really but we'll just focus on 3) historical phases (Dual, Cooperative, and New). Discuss each phase and eva

Characteristic of an efficient market, Question 1: (a) Explain and com...

Question 1: (a) Explain and comment on the various rationales presented to support the combination of two companies in a merger or takeover. (b) What are two theoretical r

Interest Rates and Bond Valuation, Bond J is a 4 percent coupon bond. Bond ...

Bond J is a 4 percent coupon bond. Bond K is a 12 percent coupon bond. Both bonds have 8 years to maturity, make semiannual payments and have a YTM of 7 percent....what are the mon

Impact on uncertainty in the global foreign exchange markets, Question 1: ...

Question 1: i) Each of the following statements has been put forward as an explanation of determinants of exchange rate: a) ‘the increase in the value of a currency is becau

Prepare a statement of stockholders equity, On December 31, 2009, the Real ...

On December 31, 2009, the Real Weapons Factory reported total stockholders' equity of $447,200. On that date, total contributed capital was $360,000. During 2009, the firm had tota

Merger and acquisition, The chocolate icecream company and vanila icecream ...

The chocolate icecream company and vanila icecream company has mergeged to form fudge cnsolidated. Both the companies are exactly alike and situated in two different towns. The end

Investing, Suppose the dividends for the Seger Corporation over the past si...

Suppose the dividends for the Seger Corporation over the past six years were $1.36, $1.44, $1.53, $1.61, $1.71, and $1.76, respectively. Compute the expected share price at the end

Distinguish between natural hedging and cross-hedging, Question: (a) Is...

Question: (a) Is it feasible for a firm to hedge without using derivatives? (b) Distinguish between natural hedging, cross-hedging and direct hedging. (c) Mr Hedginglall

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd