Ahmad's manufacturing is considering to increase his company's production capacity. This will involve repurchasing of one of his machines the initial outlay would be RM 10 000. Upon enquiring the premium version costs RMS 000 and the normal version costs RM50 000. The working life for the premium version is 6 years and the normal version is 4 years. Both machines have no scrap value at the end of their expected working lives. The finance director and the sales director met to discuss sales projection associated with the 2 machines. They forecast the following net cash inflows over the 4 and 6-years period until the machinery will need to be replaced. The estimation taxation amount calculated at 35% is payable on operating cash flows one year in arrears is and writing down allowances are estimated as Table Qla and Table 01b. Year Year Year 2 Year 3 Year 4 Year 5 Table Q1a: Premium model machine Ringgit Malaysia Net Cash Inflow Tacation Writing Down Allowances 32030 26 110 (11211) 7700 25389 19139) 5775 25 940 (8883) 4331 38 560 19079) 3248 35 100 (13496) 2436 (122851 7309 Year 6 Year 7 Year Year 1 Year 2 Year 3 Year 4 Years Table Q1b: Normal model machine Ringgit Malaysia Net Cash Inflow Taxation Writing Down Allowances 20 500 22 860 171751 4 375 24210 (8 001) 3 281 23 410 (8474) 8474 38 560 (8 194) 8194 Page 1 of 5 a) The discount rate for the normal machine is 12% annually while it is 2% higher for the premium machine as it is a new product and hence, the risk is higher. The Director proposed getting a term loan financing at a fixed interest rate of 11% per year for the machine purchase Calculate the payback period and net present value for the premium machine IS MARKS 1. Calculate the payback period and net present value for the normal machine. (5 MARKS) I put up your recommendation on which machine should the company purchase with justification (5 MARKS) iv. If the company is given an option of leasing of the normal machine over a four year period at a rental of RM15,000 annually, not including maintenance costs, evaluate whether the company should ease of purchase the machine IS MARKS