Bing D Berhad is a newly establish company that sell variety flavours of ice shave. To start, the company wishes to invest in a new ice shave machine imported from Korea. Thus, the manager of the company has come out with the proposal below:

(i) Purchase Machine A with the cost of RM8,000 and transportation cost of RM1,500. The useful life of the machine is 5 years. It is expected that, the company will generate RM3,600 per year throughout its useful life.

(ii) Purchase Machine B with the cost of RM9,500 and transportation cost of RM500. It is expected that the company will generate RM3,000 in first year and increase 10 percent in second year and 20 percent per year for the next 2 years.

Bing D Berhad required rate of return is 4 percent and required payback period is 3 years.

Required to:

(a) Calculate the Payback Period (PP), Net Present Value (NPV) and Profitability Index (PI) of the project

(16 marks)

(b) Determine which machine that the company should purchase if the machines are mutually exclusive and state your reason.

(2 marks)

(c) Identify whether Bing D Berhad should purchase Machine A or not by using Internal Rate of Return (IRR) techniques. (7 marks)