1. New-worn Pte Ltd, a textile recycling firm, has been in business for 20 years. It is contemplating purchasing new machines to replace existing ones. In order to determine the feasibility of incorporating the new machines into its current production process, New-wom had previously paid $6000 to commission a study for this exercise. The new machines are expected to cost $340 000, with an additional $10 000 for installation expense. The after-tax proceeds from disposing off existing machines is expected to amount to $45 000. Current assets will increase by $5000, and current liabilities will increase by $3000. The revenues and expenses (excluding depreciation and interest) associated with the existing machines for the next four years are given in the table below. 1 500 000 380 000 2 620 000 520 000 Year Revenue ($) Expenses (S) The company has a cost of capital of 8% per annum. 3 680 000 600 000 4 720 000 650 000 a) Determine the initial investment associated with the purchase of the new machines. (4 marks) b) It is projected that the new machines will increase revenue by 25%, and increases expenses by 10% respectively. Calculate the following: i. Operating cash inflows for the existing machines. Operating cash inflows for the new machines. 11. 111. Incremental cash flows for this project. c) Calculate the Net Present Value (NPV) for this project. d) Should New-wom purchase the new machines, or continue with the existing machines? Explain. (2 marks) (4 marks) (4 marks) (4 marks) (7 marks)

New-worn Pte Ltd, a textile recycling firm, has been in business for 20 years. It is contemplating purchasing new machines to replace existing ones. In order to determine the feasibility of incorporating the new machines into its current production process, New-worn had previously paid $6000 to commission a study for this exercise. The new machines are expected to cost $340000, with an additional $10000 for installation expense. The after-tax proceeds from disposing off existing machines is expected to amount to $45000. Current assets will increase by $5000, and current liabilities will increase by $3000. The revenues and expenses (excluding depreciation and interest) associated with the existing machines for the next four years are given in the table below. The company has a cost of capital of 8% per annum. a) Determine the initial investment associated with the purchase of the new machines. (4 marks) b) It is projected that the new machines will increase revenue by 25%, and increases expenses by 10% respectively. Calculate the following: i. Operating cash inflows for the existing machines. ii. Operating cash inflows for the new machines. iii. Incremental cash flows for this project. (4 marks) (4 marks) (4 marks) (7 marks) c) Calculate the Net Present Value (NPV) for this project. the d) Should New-worn purchase the new machines, or continue with the existing machines? Explain. (2 marks) New-worn Pte Ltd, a textile recycling firm, has been in business for 20 years. It is contemplating purchasing new machines to replace existing ones. In order to determine the feasibility of incorporating the new machines into its current production process, New-worn had previously paid $6000 to commission a study for this exercise. The new machines are expected to cost $340000, with an additional $10000 for installation expense. The after-tax proceeds from disposing off existing machines is expected to amount to $45000. Current assets will increase by $5000, and current liabilities will increase by $3000. The revenues and expenses (excluding depreciation and interest) associated with the existing machines for the next four years are given in the table below. The company has a cost of capital of 8% per annum. a) Determine the initial investment associated with the purchase of the new machines. (4 marks) b) It is projected that the new machines will increase revenue by 25%, and increases expenses by 10% respectively. Calculate the following: i. Operating cash inflows for the existing machines. ii. Operating cash inflows for the new machines. iii. Incremental cash flows for this project. (4 marks) (4 marks) (4 marks) (7 marks) c) Calculate the Net Present Value (NPV) for this project. the d) Should New-worn purchase the new machines, or continue with the existing machines? Explain. (2 marks)