Recently, a coffee machine at Moonbucks has broken down. The firm is considering whether to repair the existing coffee machine or replace it with a new high-tech coffee machine. The estimated cost to repair the existing coffee machine is RM50,000, and it is expected to generate revenue of RM45,000 each year for the coming 5 years. On the other hand, the cost to purchase the new high-tech coffee machine is RM100,000 and it is expected to generate the following revenues:

Year	Revene (RM)
1	35000
2	47000
3	64000
4	61000
5	57000

Assume the cost of capital is 9%.

(a) Calculate the following for repairing and replacing existing machine:

(i) Payback period;

(ii) Net Present Value (NPV).

(b) Based on the NPV result in part (a) above, suggest whether Moonbucks should repair

the existing machine or replace it with a new high-tech coffee machine.

Answer rating: 100% (QA)

Repairing Existing Machine i Payback Period Payback Period Initial Investment Annual Cash Flow Payba... View the full answer