BS Electronics Ltd is considering a proposal to replace one of its machines. In this connection, the following information is available. The existing machine was bought 3 years ago for `10 lakh. It...

BS Electronics Ltd is considering a proposal to replace one of its machines. In this connection, the following information is available. The existing machine was bought 3 years ago for `10 lakh. It was depreciated at 25 per cent per annum on reducing balance basis. It has remaining useful life of 5 years, but its annual maintenance cost is expected to increase by `50,000 from the 6th year of its installation. Its present realisable value is `6 lakh. The new machine costs `15 lakh and is subject to the same rate of depreciation. On sale after 5 years, it is expected to net `9 lakh. With the new machine, the annual operating costs (excluding depreciation) are expected to decrease by `1 lakh. In addition, the new machine would increase productivity on account of which net revenues would increase by `1.5 lakh annually. The tax rate applicable to the firm is 35 per cent and the cost of capital is 10 per cent. Is the proposal financially viable? Advise the firm on the basis of NPV of the proposal.