​ Mr. Kaer, a finance executive with Zico Bhd. was instructed by CEO to revise the draft the tender bid for a contract of supplying canvas to the Military Department of Malaysia. The contract include...

​ Mr. Kaer, a finance executive with Zico Bhd. was instructed by CEO to revise the draft the tender bid for a contract of supplying canvas to the Military Department of Malaysia. The contract include the supply of 100,000 meters of canvas material every year for 5 years. The price of the tender for one meter is RM30. If the company is successful in getting the tender, a new machine will be required and the cost is RM 1 million. The new machine will have a useful life of 5 years, with an estimated residual value of RM250,000. Depreciation allowance is on a straight-line basis. The company need to renovate the factory for the processing of the canvas and the cost is RM500,000. Mr Kaer receives another additional information regarding a company which operates a chain of hotel has offered RM600,000 to purchase the land as well as the old factory. Zico Bhd. will bear fixed cost in operation and sales at RM300,000 a year and variable cost of RM18 for every meter canvas produced. The initial working capital is RM300,000 and the need working capital will not change. The tax rate is expected to be low i.e 25% and the rate of return that is required is 12%.