Tuas Limited (“Tuas”) is considering to replace its existing air-conditioning system with an energy efficient centralised cooling system that is compliant with BCA Green Mark 2021 (“new cooling system”).Civil engineering costs to assess the feasibility of the new cooling system of $50,000 was incurred last month. Installing the new cooling system will cost $320,000, and maintenance expense of $25,000 per year is required. An initial investment in spare parts inventory of $12,000 is needed, which will be fully recovered at the end of its useful life of five years.Savings in utilities is estimated to be $150,000 per year for the next five years. Tuas adopts a policy of depreciating such equipment to zero net book value equally over five years. A salvage value of $20,000 is anticipated. Corporate tax rate is 17% and the discount rate is 10%. Solve the cash flow from assets for Years 0 to 5 (inclusive) relating to the new cooling system, and appraise whether Tuas should proceed with it. Workings should be shown where appropriate.
Tuas Limited (“Tuas”) is considering to replace its existing air-conditioning system with an energy efficient centralised cooling system that is compliant with BCA Green Mark 2021 (“new cooling system”).
Civil engineering costs to assess the feasibility of the new cooling system of $50,000 was incurred last month. Installing the new cooling system will cost $320,000, and maintenance expense of $25,000 per year is required. An initial investment in spare parts inventory of $12,000 is needed, which will be fully recovered at the end of its useful life of five years.
Savings in utilities is estimated to be $150,000 per year for the next five years. Tuas adopts a policy of
Solve the cash flow from assets for Years 0 to 5 (inclusive) relating to the new cooling system, and appraise whether Tuas should proceed with it. Workings should be shown where appropriate.
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