One machine has a life of 5 years. It is now used for 2 years. The depreciation period is 5 years. The book value is 150,000 baht. The market price is the same as the book value. Annual production is 190,000 baht per year, because there is a need to produce for another 5 years, so there are two options to choose from.
1. Overhaul the old car with the cost of overhaul at the end of the first year is 50,000 baht to be used for another 5 years, the annual cost will be reduced to 160,000 baht per year and no residual value after the end of life.
2. Buy a new machine for 360,000 baht can be used for 5 years after the end of the life of 60,000 baht, the cost of production reduced to only 80,000 baht.
If the depreciation is based on straight line method. The rate of return before tax is 8 percent per annum. The tax rate is 20 percent. Choose the right option and if you buy an old one at a price of 160,000 baht (trade-in), the consideration will change?