QUESTION 1 A machine purchased four years ago for RM70,000 has been depreciated to a book value of RM50,000. The machine originally (at the time of purchase four years ago) had a projected life of 14 years and zero salvage value. The company wants to replace this machine with a new one. A new machine will cost now RM130.000. The engineering department has estimated its installation cost to be RM20,000. It is also estimated that the new machine will result in a reduced operating cost of RM15.000 per year over the next ten years. The old machine (i.e. the present one) would fetch, if sold to-day, a price of RM80,000. The new machine will have a 10-year life with no salvage value. Assume that the company's normal income and capital gains are taxed at 55% and 30%, respectively Cost of capital (after-tax) for this company is 10%. Apply Net Present Value (NPV) and Profitability Index (PI) methods, and advise whether the company should replace the existing machine or not