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Question2 PS Metal Sdn Bhd has been considering the purchase of a new tooling machine. The existing machine is operable for four more years and
Question2 PS Metal Sdn Bhd has been considering the purchase of a new tooling machine. The existing machine is operable for four more years and will have a zero-disposal price. If the machine is disposed of now, it may be sold for RM160,000. The new tooling machine will cost RM460,000 and an additional cash investment in working capital of RM170,000 will be required. This new machine will reduce the average amount of time required for moulding and will decrease labour costs. The investment is expected to net RM300,000 in additional cash inflows during the first and second year of acquisition, RM290,000 in the third year and RM280,000 in the fourth year of use. The new machine has a four-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. The required rate of return is 8% and income taxes are not considered in this problem. The additional working capital is fully recoverable at the end of the useful life. a) Calculate the following methods for the investment: (5 marks) i. Net present value ii. Payback period b) Based on your answer in (a), give recommendation should the company proceed to purchase the new tooling machine? Justify your answer. (5 marks) c) Discuss what are the relevant financial and non-financial factors that PS Metal need to take into consideration when considering the purchase of a new tooling machine. (6 marks)
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