URGENTTT NO HANDWRITING PLEASEEE

Q2. (a) Cosmic Berhad plans to purchase a new machine to increase its manufacturing production capacity. The price of the machine is RM215,000 and its incidental installation cost will be RM15,000 to be installed. In getting the machine to operate, an additional RM3,000 in current assets as well as an increase of RM1,000 in current liabilities are required. On the one hand, the new machine will result in an increase in annual revenue by RM90,000. On the other hand, it will also increase the annual operating costs by 10% of the revenue increment. The new machine will be depreciated based on straight line depreciation method. The useful life of the machine is 5 years, and the firm is planning to keep the machine for 5 years. Salvage value at the end of its useful life will be RM45,000. Only 80% of the net working capital can be recovered at the end of year 5. The companys cost of capital is 8% and the marginal tax rate applicable is 30%.

(i) Compute the initial investment required for the new machine. (3 marks)

(ii) Compute the operating annual cash flows associated to the new machine. (6 marks)

(iii) Compute the terminal cash flows at the end of the 5 years period. (3 marks)

(iv) Compute the net present value (NPV) for this machine acquisition project. (4 marks)

(v) Based on the computed NPV in (iv), should Cosmic purchase the new machine? Justify your decision. (2 marks)