Question
Zetty berhad is considering the purchase of a new sewing machine, which will cost RM220000, plus and additional RM10500 to ship and install the new
Zetty berhad is considering the purchase of a new sewing machine, which will cost RM220000, plus and additional RM10500 to ship and install the new machine will have a 6-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to generate new sales of rm50,000 per year and is expected to save RM 25000 in labour and electrical expenses over the next 6 years. Upon buying the machine, it requires inventories to increase by RM 15000 and accounts payable increase by rm5,000. The change in Net Operating Working Capital is expected to be fully recovered in 6 year. In year 6, the machine is expected to have a disposal value of RM60000. Zetty Berhad faces 28% marginal tax rate and uses or 10% discount rate for capital budgeting purposes.
Required:
a) calculate the project initial outlay?
b) what is the net present value of the proposed project?
c) should Zetty Berhad proceed with this project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started