SV Sdn Bhd is considering to buy a giant machine which is expected to increase its factory production output and profits over an expected useful life of 5 years. The initial cost of investment of this machine is RM3,500,000. The estimated annual profits for the next 5 years, are as follows RM 200,000 400,000 700,000 550,000 300,000 Year 1 Year 2 Year 3 Year 4 Year 5 It is expected that machine will depreciate its useful lives and the company is adopting straight-line method in depreciation this machine. It is noted that the annual profits above are derived after deducting: annual depreciation, with an assumption that the residual value for the machine at the end of Year 5 shall be RM50.000. (i) (ii) annual administrative expenses of RM35,000. annual general provision for various expected write-offs. This provision was computed based on 1% of the investment value. (iii) Further information:
SV Sdn Bhd is considering to buy a giant machine which is expected to increase its factory production output and profits over an expected useful life of 5 years. The initial cost of investment of this machine is RM3,500,000. The estimated annual profits for the next 5 years, are as follows RM 200,000 400,000 700,000 550,000 300,000 Year 1 Year 2 Year 3 Year 4 Year 5 It is expected that machine will depreciate its useful lives and the company is adopting straight-line method in depreciation this machine. It is noted that the annual profits above are derived after deducting: annual depreciation, with an assumption that the residual value for the machine at the end of Year 5 shall be RM50.000. (i) (ii) annual administrative expenses of RM35,000. annual general provision for various expected write-offs. This provision was computed based on 1% of the investment value. (iii) Further information:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
calculate
Transcribed Image Text:SV Sdn Bhd is considering to buy a giant machine which is expected to increase
its factory production output and profits over an expected useful life of 5 years.
The initial cost of investment of this machine is RM3,500,000. The estimated
annual profits for the next 5 years, are as follows
Year 1
Year 2
RM
200,000
400,000
Year 3
Year 4
700,000
550,000
300,000
Year 5
It is expected that machine will depreciate its useful lives and the company is
adopting straight-line method in depreciation this machine.
It is noted that the annual profits above are derived after deducting:
annual depreciation, with an assumption that the residual value for the
machine at the end of Year 5 shall be RM50.000.
(i)
(ii)
annual administrative expenses of RM35,000.
annual general provision for various expected write-offs. This provision
was computed based on 1% of the investment value.
(iii)
Further information:
Transcribed Image Text:Further information:
Ideally the company would like a 15% return on this investment. The following
are the present value information:
Present value
15%
10%
20%
Year 1
0.833
0.694
0.579
0.909
Year 2
Year 3
Year 4
Year 5
0.870
0.756
0.658
0.572
0.826
0.751
0.482
0.683
0.621
0.497
0.402
Required:
Calculate the net present value. internal rate of return, accounting rate of return
and payback period, net present value of the planned investment project.
a.
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