The management has decided not to seell the old equipment. All the present value is YEAR1234Discount rate (10%)0.9090.8260.7510.683Determine the releevant after tax cash flows at each of the following three point i) project initiation (Year 0)ii) Project operation (Year 1-4)iii) Project disposal (termination, year 4)B) Based on the workings in (a) and using the NPV decision model, should the company buy the new oil field equipment? show calculation. Part AMMC Heavy Industries Sdn. Bhd. (MMC) uses oil field equipment for deep sea oil drilling.MMC is considering replacing some of its existing oil field equipment now to increase itsdrilling capacity and subsequent oil output.The new equipment will reduce annual energy costs by RM50,000 and generate an annualincrease in contribution margin of RM40,000. Incremental cash operating costs per year isRM20,000. This new equipment has expected useful life of 4 years.The Chief Financial officer of MMC has prepared the following additional information andassumptions to support the decision:New oil field equipmentPurchase priceRM140,00010,00010,0004 years10,00015,000New machine installation costsNew machine testing/adjustment costsExpected useful lifeExpected salvage valueEnd of life disposal valueDepreciation method is straight line methodYear 4 employee relocating expensesFirst year employee training costsIncremental net working capital investment,payable now and fully recoverable at the end ofyear 4.Income tax rate20,00010,00020,00020%Discount rate10%

Hi, Thanks for the question. Since you asked multiple sub parts question, we will answer first three…

The management has decided not to seell the old equipment. All the present value is YEAR 1 2 3 4 Discount rate (10%) 0.909 0.826 0.751 0.683 Determine the releevant after tax cash flows at each of the following three point i) project initiation (Year 0) ii) Project operation (Year 1-4) iii) Project disposal (termination, year 4) B) Based on the workings in (a) and using the NPV decision model, should the company buy the new oil field equipment? show calculation.

The management has decided not to seell the old equipment. All the present value is YEAR 1 2 3 4 Discount rate (10%) 0.909 0.826 0.751 0.683 Determine the releevant after tax cash flows at each of the following three point i) project initiation (Year 0) ii) Project operation (Year 1-4) iii) Project disposal (termination, year 4) B) Based on the workings in (a) and using the NPV decision model, should the company buy the new oil field equipment? show calculation.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 8P

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