ZAR Sd$.$ Bhd$.$ is considering the purchase of a packaging machine. The purchase price of the

machine is RM$80,000,$ plus an additional RM$1,500$ to ship and RM$25,000$ to install. The new

machine will have a $5-$year useful life and will be depreciated using the $3-$year MACRS class

$($Depreciation in Year $1-33\%$; Year $2-45\%$; Year $3-15\%$; and, Year $4-7\%$ on costs$).$

The machine is expected to generate new sales of RM$40,000$ per year and is expected to

save RM$15,000$ per year on labour expenses over the next $5$ years. However, the production

costs will also go up by RM$3,000$ every year. Upon buying the machine, it requires inventories

to increase by RM$20,000$ and accounts payable increase by RM$10,000.$ The change in Net

Operating Working Capital is expected to be fully recovered at year $5.$ The machine is

expected to have a disposal value of RM$30,000.$ ZAR Sdn$.$ Bhd$.$ uses a $12\%$ discount rate for

capital budgeting purposes and the firm's income tax rate is $40\%.$

REQUIRED:

a$.$ Should ZAR proceed with the new project?

b$.$ Using the Payback Period Method and Discounted Payback Period Method, calculate

the number of years needed to recover the initial cash outlay.

c$.$ Explain relevant and irrelevant cash flow by giving $2$ examples respectively.