Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Cannelloni Berhad intends to purchase an equipment worth RM500,000. The new equipment will have a 5-year useful life and will be depreciated to zero

image text in transcribed

Cannelloni Berhad intends to purchase an equipment worth RM500,000. The new equipment will have a 5-year useful life and will be depreciated to zero using the straight-line method. An import duty of RM50,000 must be paid as the equipment is imported from Korea, on top of RM15,000 for shipping and RM5,000 for installation. The new equipment requires inventories of raw material to increase by RM20,000. Accounts payable is also expected to increase by RM8,000. The net operating working capital is expected to be recaptured at the end of the project. The equipment is expected to generate new sales of RM120,000 per year and is expected to save RM25,000 in labor and electrical expenses over the next 5-years. At the end of its useful life, the equipment is expected to have a disposal value of RM80,000. Cannelloni's marginal tax rate is 28 percent and has a required rate of return of 8 percent. Required: a) Calculate the initial cash outflow to purchase the new equipment. (2 Marks) b) Calculate the project's net present value and comment on the acceptability of the project. (8 Marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Venture capital and the finance of innovation

Authors: Andrew Metrick

2nd Edition

9781118137888, 470454709, 1118137884, 978-0470454701

More Books

Students also viewed these Finance questions

Question

=+b) Are the conditions for ANOVA met? Why or why not?

Answered: 1 week ago