Please answer question 1 for each attachment. Please provide the best expert to answer the...

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Please answer question 1 for each attachment. Please provide the best expert to answer the question.

Question 1 : Whity Berhad bought a used printing machine 5 years ago hoping it would serve its printing needs for 10 years. Although the machine had performed as expected for the last five years, newer and more highly automated colour printers have now become available. The existing machine has a book value of RM 100,000 and is being depreciated at RM 20,000 a year towards a zero-salvage value in 5 years. However, today the machine can be sold for only RM 50,000. The appeal of the new machine is that it is completely automated (requires two fewer employees whose combined salaries and fringe benefits total RM 110,000 per year) and also does color printing. The ability to sell color ads is expected to increase the paper ads revenues from RM 150,000 per year to RM 200,000. However, the added color printing feature comes at the cost of higher maintenance and ink cost of RM 100,000 compared to only RM 80,000 for the older machine. The new machine being considered costs RM 300,000 to purchase, plus an additional RM 10,000 in shipping and installation costs. Last year , the company also spent RM 3, 000 to send staff for training on new machine. The new machine will be depreciated using straight line method. The expected disposal value of the new machine is RM 100, 000 in 5 years. Whity Berhad faces a 24% marginal tax rate. The beta factor of this new investment is 2.0. The company has a target capital structure of 50% equity and 50% debt. The cost of debt after -tax is 10%. The risk -free rate is 4% and market risk is 8%. Required: a) Would you argue for the cost of shipping and installation, and training to be included in the calculation of initial cash outflow? Justify your answer ( 3 marks) b) What is the cost of equity for the new project? (3 marks) c) Calculate the initial cash outflow associated with replacing the older printing machine with new machine. (4 marks) d) Calculate the net present value if the company decided to buy the new printing machine. (8 marks) e) Should the company proceed with buying the new machine? (2 marks)

exam-questin-1-2wqfkzvw.pdf exam-question-1-jpr2quqm.docx

Yash · Accepted Answer

a.) Computation of Ratios:
i.) Current Ratio
	Particulars
	2020
	2019
	Total Current Assets
	53,60,224
	22,48,000
	Total Current Liabilities
	22,89,600
	9,63,200
	Current Ratio
	2.34
	2.33
ii.) Quick Ratio
	Particulars
	2020
	2019
	Total Current Assets
	53,60,224
	22,48,000
	Less: Inventories
	34,32,960
	14,30,400
	Total Quick Assets
	19,27,264
	8,17,600
	Total Current Liabilities
	22,89,600
	9,63,200
	Quick Ratio
	0.84
	0.85
iii.) Total Debt Ratio
	Particulars
	2020
	2019
	Total Debt
	30,89,600
	16,10,064
	Total Assets
	69,94,304
	29,37,600
	Total Debt Ratio
	0.44
	0.55
iv.) Debt to Equity Ratio
	Particulars
	2020
	2019
	Total Debt
	30,89,600
	16,10,064
	Total Equity
	39,04,704
	13,27,536
	Total Debt to Equity Ratio
	0.79
	1.21
v.) Time Interest Earned
	Particulars
	2020
	2019
	EBITDA
	30,48,040
	10,46,640
	Interest Expense
	3,50,040
	2,19,140
	Time Interest Earned
	8.71 times
	4.

Question 1 : Whity Berhad bought a used printing machine 5 years ago hoping it would serve its printing needs for 10 years. Although the machine had performed as expected for the last five years,...

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