Tipseng Sdn$.$ Bhd $($Tipseng$),$ a leading tile manufacturer in Malaysia, produces high quality tiles

encompassing a full range of products. These include full concept wall and floor tiles, porcelain and

glazed porcelain tiles, high$-$end multi$-$effect granite tiles, as well as borders and accessories. It is now

evaluating an investment proposal for a new manufacturing plant costing RM$1\mathrm{.}5$ million. This new

plant will enable Tipseng to produce a new product "GXTILES". The following information relates to

the proposal:

The general price inflation is expected to be $3\%$ per year over the period. However, the selling price

is expected to increase by $4\%$ per year, while the variable and fixed costs are expected to increase by

$2\%$ per year.

Production and sales are expected to be at the following levels:

Capital allowance is claimable on the capital investment on a straight$-$line basis over the estimated

three$-$year life of the asset. The company pays tax one year in arrears at a rate of $30\%$ and the new

manufacturing plant is not expected to have any scrap value at the end of the project. The new

manufacturing plant will be required at the beginning of the investment project.

Working capital of $RM300,000$ will be required at the start of the investment project and is

recoverable at the end of the project.

The weighted average cost of capital of Tipseng is $12\%.$

Required:

$($a$)$ Calculate the net present value of the proposed investment.

$($b$)$ Based on your answer in part $($a$)$ above, recommend with reasons whether the project is

acceptable.

$(2$ marks$)$