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Cash Flow Estimation Question 6.3 Cavensy Furniture Berhad is considering replacing its current fully automated one. Consultation fees of RM8,750 had already been paid for

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Cash Flow Estimation Question 6.3 Cavensy Furniture Berhad is considering replacing its current fully automated one. Consultation fees of RM8,750 had already been paid for the evaluation ot the proposed process line. This was done to fulfill the conditions set by its board of directors. The existing line is five years old and was purchased at the cost of RM1,125,000and can be old oday for RM400.000. The current machine is being depreciated over a 10-year life toward a zero salvage value on a straight-line basis. leather-cutting machine with a Sunk The new machine is expected to increase Cavensy turnover (hrough increased prod by 1285,000 per year.lt has a 5-year life, costing RM1,750,000 and can be sold for an expected RM500,000 at the end of the h year. The new machine is also being depreciated on a straight-line basis toward a zero estimated salvage value. The company is in the 35 per-cent tax bracket and cost of capital is 14 per-cent. Other information obtained is as follows: urrent machinej Labour cost Maintenance cost Electricity cost Defect cost RM 200,000 36,000 60,000 17,000 osed machin RM 16,000 36,000 120,000 48,000 45,000 68,000 Shipping cost Installation and commissioning Labour cost Maintenance cost Electricity cost Investment in net working capital Required: You have been appointed Board of Directors of Cavensy as a financial analyst. a) Prepare the cash flow estimation for this project. (20 marks) b) Explain to the management team of Cavensy the meaning of the term 'relevant cash (5 marks) flow' in the context of investment appraisal. Cash Flow Estimation Question 6.3 Cavensy Furniture Berhad is considering replacing its current fully automated one. Consultation fees of RM8,750 had already been paid for the evaluation ot the proposed process line. This was done to fulfill the conditions set by its board of directors. The existing line is five years old and was purchased at the cost of RM1,125,000and can be old oday for RM400.000. The current machine is being depreciated over a 10-year life toward a zero salvage value on a straight-line basis. leather-cutting machine with a Sunk The new machine is expected to increase Cavensy turnover (hrough increased prod by 1285,000 per year.lt has a 5-year life, costing RM1,750,000 and can be sold for an expected RM500,000 at the end of the h year. The new machine is also being depreciated on a straight-line basis toward a zero estimated salvage value. The company is in the 35 per-cent tax bracket and cost of capital is 14 per-cent. Other information obtained is as follows: urrent machinej Labour cost Maintenance cost Electricity cost Defect cost RM 200,000 36,000 60,000 17,000 osed machin RM 16,000 36,000 120,000 48,000 45,000 68,000 Shipping cost Installation and commissioning Labour cost Maintenance cost Electricity cost Investment in net working capital Required: You have been appointed Board of Directors of Cavensy as a financial analyst. a) Prepare the cash flow estimation for this project. (20 marks) b) Explain to the management team of Cavensy the meaning of the term 'relevant cash (5 marks) flow' in the context of investment appraisal

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