Q3 NM Sdn Bhd is considering purchasing a new system to improve one of its current production lines. Two types of system are available on the market and the company plan only uses the service of either system not more than six years. The purchase and installation of System E46 is RM6,000. The annual maintenance cost for this system is RM500 per year and to make sure the system run effectively, the system part has to be changed three times per year, which cost them RM70 each replacement. The system would last for three years; at which time it should have no more salvage value. System F90 will cost them RM14,000. This system has special requirement during installation. This requirement will require small renovation at the site and is estimated to be RM2,000. Useful life for this system is 6 years with the market value only 20% from initial value at the end of life. This system has special package from the supplier with free maintenance cost for one years, and annual maintenance cost start at year 2 with RM1,000 until year 6. The annual operation cost for both system shows in Table 2. In addition, the company has another option with renting a system at RM7,000 per year and amounts increasing by 8% per year which is fully maintained by the rental company. Based on the above information;

(a) Suggest with justification THREE (3) alternatives available to the company to improve one of its current production line for 6 years planning with the cash flow diagram illustration. (9 marks)

(b)Recommend which alternatives appears to be the best at MARR is 10% per year. [Note: Show all the steps done for the recommendation] (26 marks)

Table 2: Annual Operating Cost System E46 (RM) System F90 (RM) Year 1 0 600 2 900 2,000 2,000 3 3 1,200 1,500 4 5 1,800 2,100 6