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Your company is considering a new machine which cost RM135,000. Twomonths ago, you sent your company engineer to a training workshopdemonstrating the new machine's operation and efficiency. Inaddition, you also instructed the marketing team to survey themarket for the next four years. In total, your company spentRM22,300. If the new machine is purchased, it will require RM8,800of installation and modification cost. It will be depreciated forfour years using straight line method. Net working capital isexpected to increase by RM6,000 at startup and the full amount willbe recovered at the end of year four. Earnings before interest andtaxes (EBIT) will be RM32,000 annually throughout the four-yearperiod. At terminal, this machine can be sold at RM15,000 only. Taxrate of your company is 28 percent.

Required :

(a) What is the initial cost of this project?

(b) Determine the annual cash flow of the project from year 1to year 4.

(c) Calculate the terminal cash flow?

(d) Based on net present value (NPV) criterion, should youproceed to buy the new machine if your required rate of return is18%? Explain your answer.

(e) You would like to know if the purchase can be proceeded ifyour company sets a maximum payback period of 2 years.

(f) If the NPV and payback period criterion lead to aconflicting result, which decision rule should you follow in makingthe investment decision? Give THREE (3) reasons to explain youranswer.