Question
Nusajaya Trading has plan to expand their business and decided to replace its existing machine with a new one to increase efficiency. The current machine
Nusajaya Trading has plan to expand their business and decided to replace its existing machine with a new one to increase efficiency. The current machine initial cost was RM 70,000 bought 6 years ago with a salvage value of RM 6,000. Its expected remaining useful life is 4 years. This machine can be sold now for RM 35,000.
The purchase price of the new machine is RM 150,000 and need to bear the freight and installation cost of RM 10,000 and RM 5,000 respectively. The machine is expected to have a useful life of 10 years and RM 25,000 salvage value.
The new machine is expected to generate annual savings in operational cost of RM 30,000. The company adopts the straight-line method of depreciation. The current tax rate applicable is 20%. The companys cost of capital is 10%. i) Find the net initial outlay
ii) Find the net annual cash flow iii) Find the terminal cash flow
iv) Find the net present value
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