Uranus Sdn. Bhd is a famous shoes manufacturer in Malaysia.Recently, the management is considering to replace its old processing machine with a new sophisticated model. The old machine is bought at RM48,000 six years ago and has two years remaining.If the company sell this machine, the salvage value is RM15,000.The new machine costs RM60,000 and has remaining life of 5 years.The management believes that the new machine can produce better quality productand can achieve higher customers' satisfaction.The usage of new machine is expected to increase revenue of RM12,000 per year.Besides, it can save annual operating cost as follows.

Old Machine

New machine

Maintenance cost

RM2,000

RM2,500

Defect cost

RM3,000

RM1,000

Operating costs

RM40,000

RM35,000

Both machines are depreciated using simplified straight line and assuming the book value is 0.The marginal tax rate is 28% and internal rate of return is 12%.

i)Calculate project's initial outlay

ii)Calculate annual cash flow

iii)Calculate terminal cash flow

Determine NPV of the project. Decide whether the company should/should not replace the old machine.