Delima Bhd is considering replacing old machine with a new one to meet the increasing demand for its product in the future. The old machine was bought five years ago for RM120,000. It can be used for another 5 years with zero salvage value. The machine can be sold now for RM50,000. The maintenance and defect costs of this new machine is are RM8,000 and RM6,000, respectively, per year. This machine is handled by three workers. Each worker is paid a salary and other benefits RM15,000 per year. This benefits will not continue paid if new machine is bought. In addition, only two workers will be required if the new machine is bought and the company intends to terminate one of them. A compensation of RM60,000 will be paid to him immediately on termination.
The new machine costs RM200,000. Transportation cost of RM8,000 and import duties of RM16,000 will be incurred. In order to use this machine efficiently, the company has to send the two workers for training at a cost of RM20,0000. The machine is expected to have a useful life of 5 years with a salvage value of RM15,000.
In order to buy new machine, the firm would have to borrow RM100,000 at 10% interest per annum. This will result in an additional expense of RM10,000 annually.
This machine will increase the production speed and efficiency and therefore an additional of inventories will be bought immediately of RM20,000. Delima Bhd needs a larger space to store these inventories, and hence a small room that is currently being rented out for RM4,000 per annum will be converted into a store room.
The annual maintenance and defect costs of the new machine are expected to be RM10,000 and RM3,000, respectively. Sales are expected to increase by RM80,000 per annum if the new machine is used.
The company uses the straight –line method to
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Calculate the following after-tax cash flows attributable to the new printing machine:
i. Initial Outlay
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