Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Corporate Finance Expert

problem 1: Baobab rolling mills owns a lathe machine that was purchased 10 years ago at sh. 75 million. The machine had an expected life of 15 years at the time it was purchased, and management estimated and still believes that the salvage value will be 0 at the end of its 15 years life. The machine is being depreciated at on a straight line basis, thus opts annual depreciation charge is sh. 5 million, and its current book value is sh.25 million. The R&D manager reports that a new special purpose machine can be purchased for sh. 120 million(comprising freight and installation of sh. 10 million and 30 million correspondingly) which, over it 5 year life will reduce labor and raw materials usage enough 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 present market value is sh. 10 million that is below its sh. 25 million book value. If the new machine were acquired, the old lathe would be sold to the other company. Networking capital requirements will rise 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. Find out the following:

A) Net cash flows at the time of replacement?

B) Incremental cash flows over the life of new lathe?

C) Net terminal cash flows at the end of new machines life?

D) Payback period for the replacement decision?

E) Net current value of the new lathe?

F) The replacement decision internal rate of return?

G) Should the decision to substitute be undertaken?

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M91092

Have any Question? 


Related Questions in Corporate Finance

Financial analysis- cocacola vs pepsi questionfinancial

Financial Analysis- CocaCola VS Pepsi Question Financial Analysis- CocaCola VS Pepsi Question You will assume the role of a financial analyst and be creating a full analysisb Between Coca-Cola and PepsiCo. Please ensure ...

Format a letteryou have just finished collecting donations

Format a letter. You have just finished collecting donations for the American Cancer Society. To thank people for donating, you will send individual letters. Using guidelines in the Reference Manual, format your letter. ...

Discussion shared practice the triple bottom lineis the

Discussion: Shared Practice: The Triple Bottom Line "Is the organization making a profit?" That is what most stakeholders think about when they look at the bottom line. Yet, an organization might be making a profit while ...

Ethical dilemma jason is in his mid-50s and was raised by

Ethical Dilemma. Jason is in his mid-50s and was raised by parents of the Depression era. As a result, he is very risk adverse. He recently came into a very large amount of money and he wants to put it where it will be s ...

1 what is meant by a participation loan what does the

1. What is meant by a participation loan? What does the lender participate in? Why would a lender want to make a participation loan? Why would an investor want to obtain a participation loan? 2. What criteria should be u ...

Why do some developed countries have high levels of equity

Why do some developed countries have high levels of equity market capitalization to GDP while other developed countries have low levels? How do you suppose the adoption of the European single currency, the euro, has affe ...

Assignmentthe chief financial officer at barrington is

Assignment The chief financial officer at Barrington is concerned if the new accounting information system is compliant with the new laws enacted by the U.S. Congress, Foreign Corrupt Practices Act, and Sarbanes-Oxley Ac ...

Deliver a response to the interview question tell me about

Deliver a response to the interview question "Tell me about yourself." First impressions happen particularly quickly during a job interview. Some recruiters will begin your interview with a general question: "Tell me abo ...

1 describe how managers whose firms have debt outstanding

1. Describe how managers whose firms have debt outstanding and face financial distress, could jeopardize the investments of creditors with the "games" of asset substitution and underinvestment. 2. Differentiate between d ...

1 what is huds position on computerized loan origination2

1. What is HUD's position on computerized loan origination? 2. Explain what is meant by manual underwriting and automated underwriting. 3. Describe the principal features of Freddie Mac's Loan Prospector. 4. What does Fa ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro