Company A is contemplating to buy a new generator for utility backup which cost RM100,000 with 7 years useful life. The machine depreciated under the MACRS with a GDS recovery period of five years. At the end of its useful life, the market value will reduced by 88% from its initial value. This new generator is expected to reduce the utility cost by RM20,000 per year. The effective income tax rate is 40% and the after tax desired return on investment is 10% per year. i) If the generator is used and will be sold at year 5 of its service, will it be a good investment? ii) If it is used until its useful life, should the company proceed on buying the generator? iii) Give your suggestion, which options are better, based on your answer in i) and ii). QUESTION 1 [15 MARKS] Company A is contemplating to buy a new generator for utility backup which cost RM100,000 with 7 years useful life. The machine depreciated under the MACRS with a GDS recovery period of five years. At the end of its useful life, the market value will reduced by 88% from its initial value. This new generator is expected to reduce the utility cost by RM20,000 per year. The effective income tax rate is 40% and the after tax desired return on investment is 10% per year. (a) i) If the generator is used and will be sold at year 5 of its service, will it be a good investment? ii) If it is used until its useful life, should the company proceed on buying the generator? iii) Give your suggestion, which options are better, based on your answer in i) and ii)