OLD MACHINE

1 30000
2 30000
3 30000 NEW MACHINE INCREMENTAL UNITS
4 30000 1 50000 20000
5 30000 2 50000 20000
6 30000 3 50000 20000
7 30000 4 50000 20000

5 50000 50000

6 50000 50000

7 50000 50000
OLD MACHINE DEPRECIATION (3 YAERS PROPERTY CLASS)

1 15000
2 22000
3 40000 NEW MACHINE INCREMENTAL DEPRECIATION
4 10000 1 40000 30000
5 2 60000 60000
6 3 40000 40000
7 4 20000 20000

7
inflation 0.1              
  0 1 2 3 4 5 6 7
sp 60 66 72.6 79.86 87.846 96.6306 106.2937 116.923
CCOGS 12 13.2 14.52 15.972 17.5692 19.32612 21.25873 23.38461
COE 24 26.4 29.04 31.944 35.1384 38.65224 42.51746 46.76921
 MR A HAS BEEN GIVEN A TASK TO CALCULATE RELEVANT CASHFLOWS FOR THE
REPLACEMENT OF A MACHINE WHICH WAS BOUGHT 2 YEARS BACK FOR 900000 RS.
WITH 5% INSTALLATION, 3% TRANSPORTATION AND 1% TRAINING COST. EXPECTED
LIFE OF THE MACHINE WAS 7 YEARS AND FALL UNDER 5 YEARS PROPERTY CLASS
WITH AN EXPECTED RESIDUAL VALUE OF 25000. MACHINE WAS MANUFACTURING
40000 UNITS PER ANNUM. EACH UNIT IS BEING ABLE TO BE SOLD FOR 90RS. PER
UNIT WITH 25% CCOGS AND 13% CASH OPERTAING EXPENSES. THIS MACHINE CAN
BE SOLD TODAY ON 20% LOSS. NEW MACHINE IS AVAILABLE IN THE MARKET FOR
2500000 RS. WITH 5% INSTALLATION , 3% TRANSPORTATION, AND 1% TRAINING
COST. EXPECTED LIFE OF THE MACHINE WOULD BE 9 YEARS AND FALL UNDER 7
YAERS PROPERTY CLASS. THIS MACHINE WOULD BE ABLE TO MANUFACTURE 75000
UNITS PER ANNUM. EXPECTED RESIDUAL VALE OF THIS MACHINE WOULD BE 25000
RS. WORKING CAPITAL REQUIREMENT OF THIS MACHINE WOULD BE 20000 WHILE
FOR OLD MACHINE IT WAS 12000. CPOMPANY PAYS TAX @ 40%. AN INFLATION OF
7% IS EXPECTED IN FUTURE WHICH WILL IMPACT 100% ON ALL CASHFLOWS.

REQUIRED: - YOU ARE REQUIRED TO CALCULATE RELEVANT CASHFLOWS FOR

THE REPLACEMNET DECISION.
 Home Assignment

MR A HAS BEEN GIVEN A TASK TO CALCULATE RELEVANT CASHFLOWS FOR THE

REPLACEMENT OF A MACHINE WHICH WAS BOUGHT 3 YEARS BACK FOR 1050000
RS. WITH 2% INSTALLATION, 5% TRANSPORTATION AND 2% TRAINING COST.
EXPECTED LIOFE OF THE MACHINE WAS 7 YEARS AND FALL UNDER 5 YEARS
PROPERTY CLASS WITH AN EXPECTED RESIDUAL VALUE OF 65000. MACHINE WAS
MANUFACTURING 45000 UNITS PER ANNUM. EACH UNIT IS BEING ABLE YTO BE
SOLD FOR 95RS. PER UNIT WITH 28% CCOGS AND 15% CASH OPERTAING EXPENSES.
THIS MACHINE CAN BE SOLD TODAY ON 25% PREMIUM. NEW MACHINE IS
AVAILABLE IN THE MARKET FOR 4500000 RS. WITH 7% INSTALLATION , 4%
TRANSPORTATION, AND 2% TRAINING COST. EXPECTED LIFE OF THE MACHINE
WOULD BE 9 YEARS AND FALL UNDER 7 YAERS PROPERTY CLASS. MAXIMUM
CAPACITY OF THE MACHINE WOULD BE 150000 UNITS. DEMAND IN FIRST YEAR
WOULD BE 70000 WHICH WILL INCREASE @10% PER ANNUM. EXPECTED RESIDUAL
VALE OF THIS MACHINE WOULD BE 35000 RS. WORKING CAPITAL REQUIREMENT OF
THIS MACHINE WOULD BE 20000 WHILE FOR OLD MACHINE IT WAS 12000.
CPOMPANY PAYS TAX @ 40%. AN INFLATION OF 10% IS EXPECTED IN FUTURE
WHICH WILL IMPACT 100% ON ALL SALES, 70% ON CCOGS AND 40% ON COE.

REQUIRED: - YOU ARE REQUIRED TO CALCULATE RELEVANT CASHFLOWS FOR

THE REPLACEMNET DECISION.