QUESTION 2 Maximillian Electronics is purchasing a new machine to replace an existing one. The new machine will cost RM800,000 and will require an additional cost of RM10,500 for modification. In order to operate the new machine employees will be sent for a two months training. This will be depreciated on a straight-line basis over a period of five years with a salvage value of RM75,000 The new machine which operates much faster and of higher quality will generate additional sales of RM200,000 per year for the first three years and RM250,000 per year for the remaining years. The increased sales will have to be supported by increased working capital needs of RM48,000. Besides that, since this machine is highly automated, electricity expenses is expected to increase by RM70,000 per year. On the other hand, labour costs will be reduced by RM85,000 per year. The old machine was purchased at RM500,000 five years ago. The old machine is being depreciated under straight-line method over its useful life 10 years with RM20,000 salvage value. If a new machine is purchased, the old machine could now be sold at RM240,000. The company's tax rate is 30 percent and the cost of capital is 12 percent. i. ii. Compute the relevant cash flow-the net initial cash flows, net annual cash flows and terminal cash flows for the new machine. Net present value and the payback period of the new machine Based on the NPV method, should the firm replace the old machine with the proposed one? iii. (25 marks)