Blended learning Question (Topic 6) Question FA Ltd is considering the manufacture of a new product which would involve the use of both a new machinery costing $230,000 now and also the use of an existing machine, which cost $96,000 three years ago and has a current net book value of $60,000. There is sufficient machine hour capacity on this machine and thus under-utilized. Annual sales of the product would be 6,000 units, selling at $35 per unit. Unit costs would be as follows: $ Direct Material 7 9 Direct Labor (3 hours at 3) Fixed cost including depreciation 2 25 The project would have 5 years use-life, after which the new machine would have a net residual value of $10,000. Because direct labor is continually in short supply, labor resources would have to be diverted from other work which currently earns a contribution of $2.00 per direct labor hour. The fixed overhead absorption rate would be $3.00 per labor hour ($9 per unit), but actual expenditure on fixed overheads would not be altered. Working capital requirements would be $5,000 in the first year, rising to $15,000 in the second year and remaining at this level until the end of the project, when it will all be recovered. The company's cost of capital is 15%. Required: Should the project be accepted