Homework Answers
Price of the machine = RM155000; Installation Cost = RM110000; Transportation Cost = RM11200
Total Cost = 155000 + 110000 + 11200 = RM276200
Depreciation per year of new machine = 155000-5000/5 = RM30000 per year
Sale value of old machine = RM110000
Incremental Investment = 276200 - 110000 = RM166200
Survey Cost = RM3000
Sales value of products = 45000 * 3.5 = RM157500 per year
Variable cost = 45000*1.3 = RM58500
Reduction in current sales of existing products = RM15000
Total incremental revenue = 157500 - 58500 -15000 = RM84000
Yearly salary for two workers =2*1000*12 = RM24000
Incremental salary per year = 24000-13000 =RM11000
Incremental increase in rent = RM9000
Incremental increase in maintenance = RM6000
Cashflow from operations every year : Incremental revenue - salary - rent - maintenance - depreciation
= 84000 - 11000 - 9000 - 6000 - 30000 = RM28000
Tax @25% = 28000*(1-0.25) = RM21000 (After tax profit)
Adding back depeciation = 21000 + 30000 = RM51000
Residual value of new machine = RM5000
NPV = -166200 -3000 + 51000/1.08 + 51000/1.08^2 + 51000/1.08^3 + 51000/1.08^4 + 56000/1.08^5
= RM37831.13
Payback period:
So, the period is between 3 and 4 years
Payback period = 3 + (16200/51000) = 3.32 years
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