The management of Fujiki Bakery considering to invest in a new machine costing RM50,000. However, the company needs to make some modifications costing RM10,000 for the machine to be able to add in their special ingredients. The machine will cost them RM2.000 to transport from Japan and RM3.000 installation cost will be incurred to fit it in the company’s premise. The new machine is expected to be used for 8 years and can be sold for RM5,000 at the end of the useful life. The machine will replace 2 old machines as the new machine will be able to perform both functions of baking and packaging. Both old machines were bought 5 years ago at a price of RM20,000. The baking machine has a useful life of 8 years while the packaging machine was expected to last for 10 years. It is the company’s policy to depreciate all machines at cost over its useful life. A new bakery is willing to buy the baking machine at RM10,000 and the packaging machine RM8,000. The new machine is expected to improve sales by RM10,000 per year. The efficiency of the machine is expected to lower overtime payment to labors by RM5,000. Due to the increase in sales, production cost will also increase by RM3,000. The company’s required rate of return is 10% and corporate tax rate is 25%. You are required to calculate (show all workings): a. The initial outlay b. The differential cash flow
The management of Fujiki Bakery considering to invest in a new machine costing
RM50,000. However, the company needs to make some modifications costing
RM10,000 for the machine to be able to add in their special ingredients. The machine
will cost them RM2.000 to transport from Japan and RM3.000 installation cost will be
incurred to fit it in the company’s premise. The new machine is expected to be used
for 8 years and can be sold for RM5,000 at the end of the useful life.
The machine will replace 2 old machines as the new machine will be able to perform
both functions of baking and packaging. Both old machines were bought 5 years ago
at a price of RM20,000. The baking machine has a useful life of 8 years while the
packaging machine was expected to last for 10 years. It is the company’s policy to
baking machine at RM10,000 and the packaging machine RM8,000.
The new machine is expected to improve sales by RM10,000 per year. The efficiency
of the machine is expected to lower overtime payment to labors by RM5,000. Due to
the increase in sales, production cost will also increase by RM3,000.
The company’s required
You are required to calculate (show all workings):
a. The initial outlay
b. The differential cash flow
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