Yummy Candy Sdn Bhd (YCSB) is considering purchasing a second chocolate dipping machine in order to expand their business. The information YCSB has accumulated regarding the new machine is:

Cost of the machine

RM80,000

Increased annual contribution margin

RM15,000

Life of the machine

10 years

Required rate of return

6%

YCSB estimates to produce more candy using the second machine and thus increase their annual contribution margin. YCSB also estimates there will be a small disposal value of the machine but the cost of removal will offset that value.

REQUIRED:

(a)By ignoring the income tax issues and assume that all cash flows occur at year-end except for initial investment amounts, calculate the following for the new machine:

(i)Net present value

(ii)Payback period

(iii)Discounted payback period

(iv)Accounting rate of return based on the net initial investment (assume straight-line depreciation)

(b)Explain TWO (2) qualitative factors should YCSB consider in deciding whether to purchase the new machine.