QUESTION 1 Digital Chaos Sdn. Bhd. is planning to cope with the latest technology by changing its equipment with the latest model. The cost of new equipment is RM500,000. Employees need to be trained to handle the equipment and the cost of training is RM30,000. Other costs related to the new equipment are RM15,000 and RM5,000 for the installation and delivery cost respectively. The new equipment is expected to have a useful life of five years and at the end of the year, the expected salvage value is RM50,000. The new equipment is expected to increase the production and sales of the company by RM300,000 and reduce the operating cost by RM100,000 annually. In addition, cost of defects can also be reduced by RM50,000 every year. However, the maintenance cost is expected to increase by RM80,000 every year. With the new purchased equipment, the net working capital will increase by RM90,000. Currently, the company is using an equipment which is bought five years ago at the price of RM200,000. The old equipment has a remaining useful life of five years and after five years, the equipment is expected to have a salvage value of RM40,000. If it is sold immediately, the equipment is worth RM80,000. The company adopts straight-line method (SLM) for its depreciation policy. The company is subject to corporate tax and capital gain tax at the rate of 25% and 20% respectively. The cost of capital is 10%. Based on the above information, determine: a) The net initial outlay (9 marks) b) The differential cash flow (after tax) (8 marks) c) The terminal cash flow