\( r \) disk Manufacturing Company purchased a machine five years ago at ,ooO. The machine had an expected life of 15 years at the end of which would salvage value. Due to the first technology advancement the machine cannot and there is a proposal from management to replace it with a new one. The he will cost the company TZS. \( 120,000,000 \) including freight and installation te new machine has estimated life of 10 years at the end of which it will have lalue of TZS.10,000,000. It is estimated that the new machine will increase current amount of TZS. 120,000,000 to Tsh.170,000,000 p.a. Due to efficiency, the machine is expected to reduce annual operating costs by ,OOO. The installation of the new machine will necessitate increase in TZS.1,000,000 and this working capital will be recovered at the end of the \( s \) life. The old machine has a current market value of TZS.5000,000 and it is ny's policy to depreciate machine using the straight-line method. The
s currently financed by a mixture of debt and equity, detailed as follows:
\begin{tabular}{l|l}
& BoOk Value \\
sh. 1000 ordinary shares & TZS.000 \\
\hline Karning & \( 1,000,000 \) \\
\( 0 \% \) Preference shares of TsZs.1000 @ & \( 1,500,000 \) \\
\hline h.100,000 15\% Irredeemable debentures & 750,000 \\
\hline it \( 10 \% \) interest (secured on premises) & \( 1,250,000 \) \\
\hline
\end{tabular}
arice of ordinary shares is Tshs 3000 , and the debentures have a market price poo. The current return on government securities is \( 5 \% \), the average stock of return is \( 12 \% \) and the company has a beta value of 1.6 . The company its assets on straight line basis and is in \( 30 \% \) tax bracket
SAVE TOLOCAL
