Question 1 Azalea Berhad is considering a new project. The project will require RM400,000 for new fixed assets, RM150,000 for additional inventory and RM35,000 for additional accounts receivable. Short term debt is expected to increase by RM100,000. The project has a five-year life. The fixed assets will be depreciated straight-line to a zero-book value over the life of the project. At the end of the project, fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of RM555,000 and cost of RM340,000. The tax rate is 35% and the required rate of return is 15%. Required: a) What is the initial cost of this project? (2 Marks)

b) Calculate the net present value if Azalea Berhad decided to buy the new assets. (8 Marks)

c) Should the firm proceed with the project? Discuss. (2 Marks)