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New - worn Pte Ltd , a textile recycling firm, has been in business for 2 0 years. It is contemplating purchasing new machines to

New-worn Pte Ltd, a textile recycling firm, has been in business for 20 years. It
is contemplating purchasing new machines to replace existing ones. In order to
determine the feasibility of incorporating the new machines into its current
production process, New-worn had previously paid $6000 to commission a study
for this exercise.
The new machines are expected to cost $340000, with an additional $10000 for
installation expense. The after-tax proceeds from disposing off existing
machines is expected to amount to $45000. Current assets will increase by
$5000, and current liabilities will increase by $3000.
The revenues and expenses (excluding depreciation and interest) associated with
the existing machines for the next four years are given in the table below.
The company has a cost of capital of 8% per annum.
a) Determine the initial investment associated with the purchase of the new
machines.
b) It is projected that the new machines will increase revenue by 25%, and
increases expenses by 10% respectively. Calculate the following:
i. Operating cash inflows for the existing machines.
ii. Operating cash inflows for the new machines.
iii. Incremental cash flows for this project.
c) Calculate the Net Present Value (NPV) for this project.
d) Should New-worn purchase the new machines, or continue with the
existing machines? Explain.
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