FIN301 – Catalogue

FIN301 – Catalogue. Jim plans to acquire a new automated welding system to replace the existing manual system. This new system will initially cost $ 600,000 and will be amortized at an ACC rate of 30%.

The expected life of the system is 4 years, and the company estimates that it will be worth $ 100,000 at the end of this period. Since the new automated system will be more efficient than the old one, the company can expect to achieve a cost savings of $ 180,000 per year before tax during the period. If the ERR is 15% and the tax rate is 44%, what is the net present value of the new system?


The owner of Dan Ltd. wants to buy a new machine for his bakery. He is looking at two possible machines, Machine A and Machine B. On the one hand, Machine A will initially cost $ 100, its operating cost will be $ 10 per year and is expected to last 2 years. On the other hand, Machine B will cost $ 140 with an operating cost of $ 8 per year, and it will run out after 3 years. Both machines will be amortized at an ACC rate of 25%. If the ERR is 10% and the tax rate is 42%, which machine should the owner buy?

FIN301 – Catalogue

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