Questions 1 to 4 based on the information below. Hermanto Ltd plans to buy new assets worth RM80,000. The assets require the cost of installing RM20,000 and RM50,000 for transportation and installation. It also increased working capital of RM25,000. The machine has a lifespan of 6 years and the value of zero scrap. Training costs of RM10,000 are needed to enable the machine to operate. It is depreciated on a straight line basis. Earnings before interest and tax (EBIT) are expected to be RM20,000 per year. After 6 years, the asset is sold at RM4,000. Tax rate is set at 40%.

1. Determine the initial investment cost (Initial investment) of the asset.

2. Determine Operating cash inflows of the asset

3. Determine the final cash flow of the asset

4. Determine the net present value (NPV) of the asset if the rate of return required 10%. Should this asset be purchased?