Suria Sdn Bhd is considering purchasing a new machine with cost RM450,000. It is expected to have a useful life of 5 years. At the end of the useful life, the machine is expected to have a salvage value of RM 10,000. The company's policy is to provide annual depreciation based on straight line method.

The forecasted annual sales from the project is as follows:

Year 1 - 3 Increase by RM100,000

Year 4 - 5 Increase by RM180,000

Besides that, the machine will also incur the following projected differential annual cash flows:

Electricity charges Increase by RM60,000 from year 1until year 5

Salaries Decrease by RM30,000 from year 1until year 5

Manufacturing cost Decrease by RM 50,000 from year 1 until year 3

Decrease by RM 80,000 from year 4 until year 5

The company's tax rate is 25% and the company's cost of capital is 12%. The desired payback period is three years and minimum required accounting rate of return is 20%. Below are given present value interest factor table:

Period

6%

12%

20%

1

0.9434

0.8929

0.8333

2

0.8900

0.7972

0.6944

3

0.8396

0.7118

0.5787

4

0.7921

0.6355

0.4823

5

0.7473

0.5674

0.4019