Radiant Engineers Ltd has two machines doing the same job.

Radiant Engineers Ltd has two machines doing the same job. Due to improved processing and manufacturing, the company is in a position to sell one of the machines. Machine X needs repairing costing Rs 10,000 to be operative for next three years. Its annual operating costs are expected to be Rs 12,500 and it could be sold for Rs 8,000 after 3 years. Its market value today is Rs 20,000. Machine Y has a market value of Rs 45,000 today and Rs 10,000 after 8 years. Its annual operating costs are Rs 9,000 and would require repairs costing Rs 12,000 after 3 years. The book values of Machines X and Y are Rs 12,000 and Rs 24,000 respectively. Assume that depreciation is charged on straight-line basis for computing tax. The tax rate is 45 per cent and the required rate of return is 10 per cent. Which machine should be sold?

 

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