Replacement Decision|capital Budgeting|Making Asset Replacement Decision in Financial Management

[@ruthchege6314]

Wow, i have just discovered this channel and for sure am not leaving any time soon.You explain so well sir.Keep up wit the good work.

[@ericksonlectures1624]

We shall keep on learning I am glad you got assisted

[@bynumsharon6203]

Thank you so much, you are a lifesaver.This was very helpful i can now smile😁

[@johnndungu2861]

Absolutely fantastic.

[@lillianmbita17]

I'm greatful🙏

[@justinhare905]

A very useful lecture. Thanks a lot

[@ericksonlectures1624]

I am happy you found it helpful, Will be uploading more tutorials , kindly stay in touch😊

[@charlesmacharia1815]

Thank you... This was really helpful

[@ericksonlectures1624]

You are welcome, We keep learning...

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[@mercymwangi7667]

Very helpful. Thank you

[@scholasticamoraa1797]

Three years later. Thank you

[@michaelomondi7912]

what if it was sold at a loss, would it be charged a tax still

[@ericksonlectures1624]

Disposal at a loss affects the next Financial period

[@perisokoth1425]

So we don't tax a loss?

[@ndayisabalaurent8175]

Initial outlay is not correct please ,this was affecting our decision to replace old machine because the total amount cash out flow

[@ambrosemurimi7850]

Why is the sum of initial cash outlay not 4,040? And does it affect the initial outlay if the old machine is disposed at a loss

[@ambrosemurimi7850]

(1890 +1500 + 650)

[@gilbertl3204]

tax on disposal gain should be 15

[@solomonkarara]

Sir is (1250-1200)0.3=1500 ?

[@esthermwende5768]

I think something is wrong in the calculation of depreciation of old machine is it not suppost to be 2M?

[@milkahtheuri8639]

How do you go about it if you have a loss on disposal

[@derickochieng6316]

Your the best

[@ericksonlectures1624]

Thank you very much

[@loveangle812]

May I know what is the working capital 650m?why it can recover in the in the terminal cash flow. Can I have examples for this cost?

[@remmyerick3654]

Working Capital is often used to meet daily operations , In this example, working capital of 650M is an additional investment, specifically added on the non current asset "new machine" and because a machine is a long term investment, it's returns can only be realized at the end it's economic life,hence must be added to form part of the terminal Value,at the end

[@wilsonsiwelwa8832]

Why didnt you remove depreciation before you tax on the increase in EBIT and why didn't you also add depreciation after taxing on EBIT

[@ericksonlectures1624]

Hello,sorry for late reply This method incorporated DTS(Depreciation Tax Saving)...This does not include Depreciation charge in any way,,except the taxation charge.

[@stacyatieno3596]

Thanks for this sir! I am requesting you to help me handle question 1b November 2015 advanced F.M CPA...in cases where the value of old machine is not given please

[@ericksonlectures1624]

Okay I will look at it and get back to you

[@stacyatieno3596]

Thanks so much, will be waiting

[@benedictkakai6069]

Thank you sir, can I link up with you

[@ericksonlectures1624]

Okay Reach me out via email [e-mail]

[@milkahtheuri8639]

May 2019 question 4 b please

[@ndayisabalaurent8175]

please make correction

[@remmyerick3654]

Which correction,kindly

[@rahuldas6777]

1. Expansion project The ABC Corporation is considering the purchase of a new drill press for $100,000. The machine is expected to increase production, resulting in $50,000 new sales per year. The cost to operate the machine is $10,000. The machine will be depreciated on a straight-line basis to $0 over 10 years. The project will require a net increase of $15,000 in NWC at the beginning of the project and will return half that amount at the project’s termination. In addition, ABC expects to sell the machine for $22,000 at the end of the project, six years from now. If the appropriate discount rate is 15%, and the marginal tax rate is 40%, should the firm accept the project? What if the discount rate is 10%? What if it is 20%? 2. Replacement project Assume the same information as in Question 1 above. Now consider the acceptance of the new machine for ABC, if it is replacing an old machine also with six years of useful life. The old machine generates sales of $10,000 per year and operating costs of $4,000 per year. Additional characteristics for the old machine area as follows: Purchase price: $50,000 Purchased 4 years ago Depreciated straight-line over 10 years down to zero Current disposal value of $30,000 Anticipated selling price in 6 years: $15,000 Should ABC purchase the new machine? Can you try answering this?