Please answer a question

QUESTION 1 BPR Bhd is considering a project in replacing an existing machine with a new machine that more efficient and reduce costs. That new machine would cost the entity RM 200,000 and an installation cost of RM 20,000. The machine needs to be imported, the transportation and excise duties incurred are to be RM 15,000. An increased in net working capital of RM 30,000 will be needed to support operations with new machine. The working capital is expected to be recovered once the machine is sold. The new machine has a useful life of 5 years and is estimated to have zero salvage value. The market price of the existing machine is RM70,000 with a useful life of another 5 years. It is 2 years old and has a book value of RM50,000. If held until the end of 5 years, the salvage value of the machine would be zero. During this 5 years life, the new machine should increase sales by RM 40,000 per year. The operating costs (excluding depreciation) are expected to be reduced by RM20,000 per year for the next 5 years. The desired payback period Is 3 years. The firm has a 15% cost of capital and is subjected to 26% tax rate. Required: a) Calculate: i) The initial outlay ii) The annual differential cash flows iii) The terminal cash flows (10 marks)b) Compute: i. The Payback period, ii. Net Present Value. III. MIRR (9 marks) c) Should the existing machine be replaced? Why? (1 marks) d) Briefly explain two reasons for an entity to impose capital rationing. (2 marks) e) BPR Bhd has determined the Net Present Value for each of the following indivisible projects. The amount of fund available for the investment is RM300,000 this year. If BPR Bhd uses a process of capital rationing in its decision making, which projects should the company accept? Project Net Investment (RM) Net Present Value (RM) 84,000 29,000 95,000 25,000 MOOOD 120,000 20,000 100,000 30,000 70,000 25,000 (3 marks) (Total: 25 marks)