Totem group is planning to purchase a new printing machine to replace a current machine. The cost of the new machine Konica Minolta 512i, including delivery and installation, is IDR 140,000,000. If it is purchased, Totem will incur costs of IDR 10,000,000 to remove the current printing machine and revamp its facilities and it is tax deductible at time 0.
Totem group is planning to purchase a new printing machine to replace a current machine. The cost of the new machine Konica Minolta 512i, including delivery and installation, is IDR 140,000,000. If it is purchased, Totem will incur costs of IDR 10,000,000 to remove the current printing machine and revamp its facilities and it is tax deductible at time 0.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 11P
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Please solve the all parts from the problem max 60 minutes thank u
Transcribed Image Text:1. Totem group is planning to purchase a new printing machine to replace a current machine.
The cost of the new machine Konica Minolta 512i, including delivery and installation, is
IDR 140,000,000. If it is purchased, Totem will incur costs of IDR 10,000,000 to remove the
current printing machine and revamp its facilities and it is tax deductible at time 0.
Depreciation for tax purposes will be as follows: year 1, IDR 28,000,000; year 2, IDR
49,000,000; and in each of years 3 through 5, IDR 21,000,000 per year. The existing
printing machine has a book value of IDR 70,000 and a remaining useful life of 5 years.
However, the existing equipment can be sold for only IDR 25,000,000 and is being
depreciated using the straight-line method over its actual life.
Marketing team has provided comparative printing cost data as follow:
New Machine
Machine Available per year (hour)
Current Machine
3,328
3,328
Annual Cost
Labor
21,000,000
17,500,000
Depreciation
7,000,000
9,800,000
Other (all cash)
33,600,000
14,000,000
Total Annual cost
61,600,000
41,300,000
The existing printing machine is expected to have a salvage value IDR 24,000,000 at the
end of 10 years. with removal cost included. No changes in working capital are required
with the purchase of the new machine. Assume there is no change in revenue for the next
10 years. Totem's cost of capital is 8 percent, and its tax rate is 25 percent.
Task:
Give recommendation to Management, is this project valuable or not!
Clues:
Calculate all cost and depreciation
• Consider tax benefit
Calculate Cash Flow of implementation of the new printing machine
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