Part A: Answer ALL questions.

ABC Berhad is considering adding a machine to its production line. The machine's

base price is RM$920000$ and it would cost another RM$20000)$ to install it$.$ The

machine falls into the MACRS $3-$year class and it would be sold after three

years for RM$500000.$ The MACRS rates for the first three years are $0\mathrm{.}3333,0\mathrm{.}4445$

and $0\mathrm{.}1481.$ The machine would require an increase in net working capital

$($inventory$)$ of RM$15500.$ The machine would not change the company's revenues

but it is expected to save the company RM$304000$ per year in before$-$tax operating

costs, mainly labor. The company's tax rate is $25\%.$

$($a$)$ What is the Year$-0$ cash flow?

$(4$ marks$)$

$($b$)$ What are the cash flows in Years $1,2,$ and $3?$

$(12$ marks$)$

$($c$)$ What is the additional Year$-3$ cash flow $($i$.$e$.,$ the after$-$tax salvage and the

return of working capital$)?$

$(4$ marks$)$

$($d$)$ If the project's cost of capital is $12$ percent, what is the NPV$?$

$(3$ marks$)$

$($e$)$ Based on your calculation in $($d$),$ should the machine be purchased? Why?

$(2$ marks$)$