Raguna Co. is considering adding a new machine to its production line. The machine costs RM3,000,000 with additional installation cost of RM150,000. The economic life of the machine is 6 years and Raguna Co. estimated that it can be sold for RM240,000 at the end of its economic life. The purchase will incur increases in cash by RM50,000, inventory by RM60,000, and accounts payable by RM30,000. The additional production from operating the new machine will increase sales revenues by RM900,000 and increase operation costs by RM300,000 per annum. In addition, the use of the machine will help the company in reducing labor costs by RM100,000 per year. The book value of the machine will depreciate following the simple straight-line basis. The company’s marginal tax rate is 30% and it requires 10% return. (i) Calculate the initial outlay (ii) Calculate the annual operating cash flows for year 1 to 6 (iii) Calculate the terminal cash flows.
Raguna Co. is considering adding a new machine to its production line. The machine costs RM3,000,000 with additional installation cost of RM150,000. The economic life of the machine is 6 years and Raguna Co. estimated that it can be sold for RM240,000 at the end of its economic life. The purchase will incur increases in cash by RM50,000, inventory by RM60,000, and accounts payable by RM30,000. The additional production from operating the new machine will increase sales revenues by RM900,000 and increase operation costs by RM300,000 per annum. In addition, the use of the machine will help the company in reducing labor costs by RM100,000 per year. The book value of the machine will
(i) Calculate the initial outlay
(ii) Calculate the annual operating cash flows for year 1 to 6
(iii) Calculate the terminal cash flows.
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