Pedas Bhd. is company that involves in the production of chili sauce under the b

Question

Pedas Bhd. is company that involves in the production of chili sauce under the brand
name of PODEH! The company plans to buy a new chili-grinding machine that costs
RM240,000 for the purpose of increasing its current production capacity. Delivery and
installation costs of the machine are Rm500 and RM1,500 respectively while the
training costs for the use of the machine is RM800.
The new machine will be able to increase annual sales by RM50,000 and at the same
time be able to save production costs by RM5,000 per year. The machine has a useful
life of 5 years and its depreciated using a simplified straight-line method. Pedas Bhd.
expects that the machine can be sold as scrap metal at the end of its useful life for
RM5,000.
The maintenance and repair costs for the machine is RM2,200 per year. In addition,
the purchase of the machine will also result in an additional net working capital of
RM5,000 and is expected to stay the same every year until the end of the project. The
tax rate is 28% while the required rate of return is 14%.
Calculate the terminal value of the project in year 5. What is the cash flow in
year 5.

Explanation / Answer

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