1. Papa Stationery's current photocopy machine was purchased two years ago at RM50,000. The owner, Mr Karrem, is now considering buying a new machine that can make copies twice as fast as the existing machine. This new machine can be purchased for RM 80,000 and would be depreciated straight line over 8 years, after which it would have no salvage value. Mr Kareem expects that the new machine will produce EBITDA of RM50,000 per year for the next eight years while the existing machine produces EBITDA of only RM35,000 per year. The current machine is being depreciated straight line over its useful life of 10 years after which it will have no salvage value. All other operating expenses are identical for both machines. The existing machine can be sold to another shop now for RM30,000. The Papa Stationery's tax rate is 35%. C. What is the incremental after-tax cash flow that the Papa Stationery will receive from selling the existing machine (old)? D. If the Papa Stationery's opportunity cost of capital is 12%, then what is the NPV for upgrading to the new machine?
1. Papa Stationery's current photocopy machine was purchased two years ago at RM50,000. The owner, Mr Karrem, is now considering buying a new machine that can make copies twice as fast as the existing machine. This new machine can be purchased for RM 80,000 and would be depreciated straight line over 8 years, after which it would have no salvage value. Mr Kareem expects that the new machine will produce EBITDA of RM50,000 per year for the next eight years while the existing machine produces EBITDA of only RM35,000 per year. The current machine is being depreciated straight line over its useful life of 10 years after which it will have no salvage value. All other operating expenses are identical for both machines. The existing machine can be sold to another shop now for RM30,000. The Papa Stationery's tax rate is 35%. C. What is the incremental after-tax cash flow that the Papa Stationery will receive from selling the existing machine (old)? D. If the Papa Stationery's opportunity cost of capital is 12%, then what is the NPV for upgrading to the new machine?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please Answer the subparts C&D... Im very needed Max 30-60 minutes again thank u please answer.... I
Transcribed Image Text:1. Papa Stationery's current photocopy machine was purchased two
years ago at RM50,000. The owner, Mr Karrem, is now considering
buying a new machine that can make copies twice as fast as the existing
machine. This new machine can be purchased for RM 80,000 and
would be depreciated straight line over 8 years, after which it would
have no salvage value. Mr Kareem expects that the new machine will
produce EBITDA of RM50,000 per year for the next eight years while
the existing machine produces EBITDA of only RM35,000 per year.
The current machine is being depreciated straight line over its useful
life of 10 years after which it will have no salvage value. All other
operating expenses are identical for both machines. The existing
machine can be sold to another shop now for RM30,000. The Papa
Stationery's tax rate is 35%.
C. What is the incremental after-tax cash flow that the Papa Stationery
will receive from selling the existing machine (old)?
D. If the Papa Stationery's opportunity cost of capital is 12%, then what
is the NPV for upgrading to the new machine?
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