Transcribed Image Text: Question 07: Virat Kohli Welders is planning to replace an old macne with a new one to improve

Excerpt
The old macne has no salvage value at the end of its life but can be sold now at a cost of $100,000. The new macne will have a salvage value of $80,000 at the end of its life. Should the new macne be purchased?

Transcribed Image Text: Question 07: Virat Kohli Welders is planning to replace an old macne with a new one to improve
efficiency in its production process. The macne will increase the efficiency as it is more modern and will
result in an incremental savings of $80,000 per year. The old macne was bought 3 years ago at a cost of
$270,000. The new macne will cost $420,000. Both macnes have useful lives of 6 years. The macnes
are depreciated to zero for tax purpose over the six-year life using a straight-line depreciation method.
The tax rate is 32% and the required rate of return is 13%. The old macne has no salvage value at the
end of its life but can be sold now at a cost of $100,000. The new macne will have a salvage value of
$80,000 at the end of its life. Should the new macne be purchased?

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