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  • Comparing costs and benefits of new and old machines

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    Amit Admune
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    The document compares the costs and profits of purchasing a new machine versus continuing to use an old machine over a period of 4 years. The new machine costs Rs. 297,000 with a trade-in value of Rs. 152,000 for the old machine and financing at 5.9%. The old machine would require repairs of Rs. 27,000 in the 1st year and Rs. 10,000 in the 2nd year, with annual maintenance of Rs. 4,000. Calculations show the net present value of the new machine is Rs. 236,754.05 with an internal rate of return of 59%, indicating the new machine is more financially advantageous over the 4 year period.

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    Capital Budgeting

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    The document compares the costs and profits of purchasing a new machine versus continuing to use an old machine over a period of 4 years. The new machine costs Rs. 297,000 with a trade-in value of Rs. 152,000 for the old machine and financing at 5.9%. The old machine would require repairs of Rs. 27,000 in the 1st year and Rs. 10,000 in the 2nd year, with annual maintenance of Rs. 4,000. Calculations show the net present value of the new machine is Rs. 236,754.05 with an internal rate of return of 59%, indicating the new machine is more financially advantageous over the 4 year period.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    6 views3 pages

    Comparing costs and benefits of new and old machines

    Uploaded by

    Amit Admune
    The document compares the costs and profits of purchasing a new machine versus continuing to use an old machine over a period of 4 years. The new machine costs Rs. 297,000 with a trade-in value of Rs. 152,000 for the old machine and financing at 5.9%. The old machine would require repairs of Rs. 27,000 in the 1st year and Rs. 10,000 in the 2nd year, with annual maintenance of Rs. 4,000. Calculations show the net present value of the new machine is Rs. 236,754.05 with an internal rate of return of 59%, indicating the new machine is more financially advantageous over the 4 year period.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 3

    NEW MACHINE OLD MACHINE

    Cost 297000 Repair 1 27000


    Trade in Value 152000 Repair 2 10000
    Payment maintainance 4000
    Twice a year 16347 Resale value 75000
    Financing Rate 5.9

    Usage hours 380 old usage hours 440 Initial Inv 145000
    Wage per hour 20
    Fuel per hour 22.96 C0. -145000
    Maintainance cost 2000 1.5 year free C1 87467.6
    Capital Cost of allownce 30 C2 86677.6
    Tax rate 21 C3 85887.6
    After 4 years machine value 140000 C4 225888
    59%
    Extra Benefit per acre 35
    Full land 4000
    Extra benefit 140000
    NEW MACHINE
    1st Year 2nd Year 3rd Year 4th Year
    Timeline 4 4 4 4
    Depreciation 74250 74250 74250 74250
    Payment for the machine 32694 32694 32694 32694
    Wage 7600 7600 7600 7600
    Fuel 8724.8 8724.8 8724.8 8724.8
    Maintainance 0 1000 2000 2000

    Operating Expenses 123268.8 124268.8 125268.8 125268.8

    Sales 140000 140000 140000 140000


    Profit 16731.2 15731.2 14731.2 14731.2
    Tax @21%
    PAT 13217.648 12427.648 11637.648 11637.648
    Depreciation 74250 74250 74250 74250
    Depreciation add 87467.648 86677.648 85887.648 85887.648
    Resale value 225887.648

    NPV ₹ 236,754.05
    IRR 59%
    OLD MACHINE
    1st Year 2nd Year 3rd Year 4th Year

    Repair 1 27000
    Repair 2 10000
    Maintainance 4000 4000 4000 4000
    Operating Expenses 31000 14000 4000 4000

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