FIN3701 Assignment 1 Semester 2 2023 (614237)

FIN3701
Assignment 1
Semester 2 2023
(614237)
QUESTIONS WITH ANSWERS




[School]
[Course title]

, FIN3701 Assignment 1 Semester 2 2023


QUESTION 1 [8 marks]

Selby Industries is considering replacing its existing machine which was
purchased 3 years ago at a cost of R1 million. The machine is depreciated at
20% per annum and can be sold today at R800 000. The new machine will
cost R750 000 with R20 000 installation cost and R5000 transportation costs.
The use of the new machine will decrease the working capital with R7 000.
Assume a 40% capital gains tax per annum. REQUIRED:

1.1 Calculate the book value of the existing machine. Show all calculations. (2
marks)

Book value of the existing machine:

Initial cost = R1,000,000

Depreciation rate = 20%

Number of years = 3



Depreciation expense per year = Initial cost * Depreciation rate

Depreciation expense per year = R1,000,000 * 0.20 = R200,000



Accumulated depreciation = Depreciation expense per year * Number of years

Accumulated depreciation = R200,000 * 3 = R600,000



Book value = Initial cost - Accumulated depreciation