Question 2

Epal Hijau Berhad is considering the purchase of a new strapping machine, which will cost RM120,000, plus an additional RM7,500 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to generate new sales of RM25,000 per year and is expected to save RM17,000 in labor and electrical expenses over the next 5-years. Upon buying the machine, it requires inventories to increase by RM10,000 and accounts payable increase by RM5,000. The change in Net Operating Working Capital is expected to be fully recovered at year 5. The machine is expected to have a disposal value of RM30,000. Epal Hijau Berhad uses a 13% discount rate for capital budgeting purposes and the firm's income tax rate is 40%. What is the machine's NPV?