The replacement of old machine will result the following changes:Old machineMachine TKCMachine RMRAnnual salesRM500,000Increase by 20%Decrease by 5%Increase by 2.5%Decrease by 1.5%Increase by 35%Decrease by 3%Annual cost of defectsRM80,000Annual operating costQuarterly maintenanceRM50,000Increase by 4%RM10,000Increase by 2%costInitial investment inNet working capitalNARM30,000RM20,000Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From thereplacement plan, calculate:i) Internal rate of return (IRR) Currently, this company is considering replacing an existing machine used in production that waspurchased 5 years ago for RM125, 000 with a new computer system that could improve thecompany's operations. The old machine is being depreciated under straight line method over itsuseful life of 10 years with no salvage value. Its current market value is RM5, 000.Chief Financial Officer for this company, Mr Abraham Teo has reviewing two (2) options:Machine TKC imported from China and Machine RMR imported from Japan. Below is theinformation provided for the new machine.Machine TKCMachine RMRCost of AssetRM200,000RM150,000RM12,000Freight and transportationRM10,000costInstallation costRM5,000RM3,000RM8,000Renovation cost (beforeinstallation of the machine)RM5,000Training cost (to operate theNARM5,000machine)Depreciation methodSalvage valueStraight lineRM10,000Straight lineRM8,0005 yearsUseful life5 years

For a tangible fixed asset, all costs that are necessary to bring the asset to its present location…

The replacement of old machine will result the following changes: Old machine Machine TKC Machine RMR Annual sales Increase by 20% Decrease by 5% Increase by 2.5% Decrease by 1.5% Increase by 35% Decrease by 3% RM500,000 Annual cost of defects RM80,000 Annual operating cost Quarterly maintenance RM50,000 RM10,000 Increase by 4% Increase by 2% cost Initial investment in Net working capital NA RM30,000 RM20,000 Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From the replacement plan, calculate: i) Internal rate of return (IRR)

The replacement of old machine will result the following changes: Old machine Machine TKC Machine RMR Annual sales Increase by 20% Decrease by 5% Increase by 2.5% Decrease by 1.5% Increase by 35% Decrease by 3% RM500,000 Annual cost of defects RM80,000 Annual operating cost Quarterly maintenance RM50,000 RM10,000 Increase by 4% Increase by 2% cost Initial investment in Net working capital NA RM30,000 RM20,000 Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From the replacement plan, calculate: i) Internal rate of return (IRR)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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