Merah Saga Sdn. Bhd would like to buy a new automated machine to replace the old machine in producing its single product. The automated machine that the company considering costs RM150,000. According to the manufacturer, the automated machine could be used for 5 years but would require maintenance cost of RM1,000 per year. Besides, it would cost RM8,000 more at the end of year 3 to replace wore parts. After 5 years, the automated machine could be sold for RM5,500. The company estimates that the cost to operate the machine will be RM5,200 per year which is far lower than operating cost of the old machine at RM28,000 per year. In addition to reducing costs, the automated machine will increase production by 8,000 units per year. The company realizes a contribution margin of RM2.20 per unit. Required: a. Calculate the annual net cash inflows that will be provided by the automated machine. b. Compute the net present value of the automated machine if the required rate of return is 20%.

Merah Saga Sdn. Bhd would like to buy a new automated machine to replace the old machine in producing its single product. The automated machine that the company considering costs RM150,000. According to the manufacturer, the automated machine could be used for 5 years but would require maintenance cost of RM1,000 per year. Besides, it would cost RM8,000 more at the end of year 3 to replace wore parts. After 5 years, the automated machine could be sold for RM5,500. The company estimates that the cost to operate the machine will be RM5,200 per year which is far lower than operating cost of the old machine at RM28,000 per year. In addition to reducing costs, the automated machine will increase production by 8,000 units per year. The company realizes a contribution margin of RM2.20 per unit. Required: a. Calculate the annual net cash inflows that will be provided by the automated machine. b. Compute the net present value of the automated machine if the required rate of return is 20%.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 8EB: Shonda & Shonda is a company that does land surveys and engineering consulting. They have an...

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