It has been two months since you took a position as an assistant financial analyst at Armani Berhad. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects. Given your lack of tenure at Armani Berhad, you have been asked not only to provide recommendations but also to respond to several questions aimed at judging your understanding of the capital budgeting process. The memorandum you received outlining your assignment follows:

To: The Assistant Financial Analyst

From: Mr. Morrison, CEO Armani Berhad

Re: Cash Flow Analysis and Capital Rationing

We are considering the introduction of a new product. Currently, we are in the 24% tax bracket with a 15% discount rate. The project is expected to last five years and then, it will be terminated. The following information describes the new project:

Cost of new plant and equipmentRM 7,900,000

Shipping and installation costsRM100,000

Unit Sales: