8. The management of Hi-Tech Printing (M) Berhad is considering replacing one of its machines used in high-security printing. The old machine was purchased five years ago at a cost of $75,000. The machine had an expected life of fifteen years at the time it was purchased and it was estimated then that its salvage value would be zero at the end of the fifteen years. The machine is being depreciated on a straight-line basis. The production manager reports that a new machine can be purchased at the following costs: Invoiced price of new machine Installation cost Shipping cost Freight insurance The new machine has an expected useful life of ten years. This machine is also being depreciated on a straight-line basis towards a zero salvage value. It is expected to reduce labour, maintenance and electricity expenses cutting operating costs from $75,000 to $47,500 per annum. Best estimates obtained today indicate that the new machine can be sold off for $5,000 at the end of its useful life. The old machine's actual current market value is $10,000. If the new machine is accepted, it is expected that there would in changes in the working capital requirement. Inventory levels will increase by $52,000; accruals will increase by $7,000 and accounts payable will increase by $35,000. Long-term loan will also increase by $50,000. 2 $100,000 $10,000 $6,000 $4,000 The company uses discounted cash flow techniques to evaluate capital replacement decision. Assume that the company's tax rate is at 40%, accounting and tax rates for depreciation of assets to be equal and tax expense is paid in the year it is incurred. Establish the cash flows of the replacement decision. If the company's risk-adjusted required rate of return (RADR) is 13% for this type of project, should Hi-Tech Printing proceed with its plan? (Hint: Apply the NPV and IRR criterion) a) b)