1. Papa Stationery's current photocopy machine was purchased two years ago at RM50,000. The owner, Mr Karrem, is now considering buying a new machine that can make copies twice as fast as the existing...


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1. Papa Stationery's current photocopy machine was purchased two<br>years ago at RM50,000. The owner, Mr Karrem, is now considering<br>buying a new machine that can make copies twice as fast as the existing<br>a new<br>machine. This new machine can be purchased for RM 80,000 and<br>would be depreciated straight line over 8 years, after which it would<br>have no salvage value. Mr Kareem expects that the new machine will<br>produce EBITDA of RM50,000 per year for the next eight years while<br>the existing machine produces EBITDA of only RM35,000 per year.<br>The current machine is being depreciated straight line over its useful<br>life of 10 years after which it will have no salvage value. All other<br>operating expenses are identical for both machines. The existing<br>machine can be sold to another shop now for RM30,000. The Papa<br>Stationery's tax rate is 35%.<br>A. Papa Stationery elects to upgrade to the new machine by disposing<br>the old machine, what is the incremental after-tax cash flow that will<br>be incurred today (Year 0)?<br>B. If Papa Stationery elects to upgrade to the new machine, what is the<br>incremental after-tax cash flow that will be incurred in year 1?<br>

Extracted text: 1. Papa Stationery's current photocopy machine was purchased two years ago at RM50,000. The owner, Mr Karrem, is now considering buying a new machine that can make copies twice as fast as the existing a new machine. This new machine can be purchased for RM 80,000 and would be depreciated straight line over 8 years, after which it would have no salvage value. Mr Kareem expects that the new machine will produce EBITDA of RM50,000 per year for the next eight years while the existing machine produces EBITDA of only RM35,000 per year. The current machine is being depreciated straight line over its useful life of 10 years after which it will have no salvage value. All other operating expenses are identical for both machines. The existing machine can be sold to another shop now for RM30,000. The Papa Stationery's tax rate is 35%. A. Papa Stationery elects to upgrade to the new machine by disposing the old machine, what is the incremental after-tax cash flow that will be incurred today (Year 0)? B. If Papa Stationery elects to upgrade to the new machine, what is the incremental after-tax cash flow that will be incurred in year 1?

Jun 11, 2022
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