Yaya Berhad intends to purchase equipment for RM1,500,000. The equipment has a 5-year useful life and...
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Yaya Berhad intends to purchase equipment for RM1,500,000. The equipment has a 5-year useful life and will be depreciated on a straight-line basis. Addition of the equipment requires additional working capital of RM20,000. The RM20,000 is expected to be recaptured at the end of the project. Yaya 's marginal tax rate is 32%. Use of the equipment is expected to change the company's reported EBIT by RM600,000 in year one, RM700,000 in year two, RM550,000 in year three, RM200,000 in year four, and RM100,000 in year five. Due to changing market conditions, the equipment estimated disposal value of RM100,000 at the end of year five. Required: a) Calculate the project initial outlay and the incremental free cash flows over the life of the project. (2 Marks) b) What is the Net Present Value of the proposed project? (7 Marks) c) Comment on the acceptability of the project. (1 Mark) Yaya Berhad intends to purchase equipment for RM1,500,000. The equipment has a 5-year useful life and will be depreciated on a straight-line basis. Addition of the equipment requires additional working capital of RM20,000. The RM20,000 is expected to be recaptured at the end of the project. Yaya 's marginal tax rate is 32%. Use of the equipment is expected to change the company's reported EBIT by RM600,000 in year one, RM700,000 in year two, RM550,000 in year three, RM200,000 in year four, and RM100,000 in year five. Due to changing market conditions, the equipment estimated disposal value of RM100,000 at the end of year five. Required: a) Calculate the project initial outlay and the incremental free cash flows over the life of the project. (2 Marks) b) What is the Net Present Value of the proposed project? (7 Marks) c) Comment on the acceptability of the project. (1 Mark)
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Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
Posted Date:
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