Question
A firm is considering replacing its old machine with a new one. Old machine: Book value = ₹8L, Salvage = ₹2L New machine: Cost = ₹20L, Life = 5 years Annual savings in operating cost = ₹6L Depreciation on new machine: Straight-line to zero Tax rate = 30%, Discount rate = 10% Should the firm go for replacement? (Use PVAF 10%, 5 years = 3.791)
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