CONFIDENTIAL 1 AC/JAN 2023/MAF253

UNIVERSITI TEKNOLOGI MARA

GROUP PROJECT

COURSE : FUNDAMENTALS OF FINANCIAL MANAGEMENT

COURSE CODE : MAF253
EXAMINATION : FEB 2023

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of one (1) question.

2. Answer ALL questions in English in the Answer Booklet.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 2 printed pages

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 2 AC/JAN 2023/MAF253

QUESTION 1

Megatron Sdn Bhd wants to buy a new machine amounting to RM600,000 to replace the old
machine. The old machine can be sold at RM200,000 and the salvage value is RM20,000.
The new machine has a life of five years whereas the old machine has a lifetime of 10 years.
The old machine was purchased five years ago at a price of RM500,000. The new machine
requires an additional working capital of RM70,000 for increase in inventories. The company
also needs a larger space to store the additional inventories, and hence a small factory that is
currently being rented out for RM30,000 per annum will be used for storing the additional
inventories. The new machine has no salvage value.

The company incurred RM100,000 in respect of training costs for two employees. This training
is for operating the new machine and it was conducted before the company decided to buy
the machine.

The installation cost and transport cost of the new machine are RM40,000 and RM20,000
respectively. The new machine will save RM10,000 in salary cost for the first 2 years and
RM15,000 for the subsequent years. As for the maintenance costs, it will increase to RM5,000
in the first two years and RM12,000 from third year onwards while annual sales are expected
to increase by RM250,000.

The company would have to borrow RM400,000 at 10% interest per annum to buy this
machine. This will result in additional interest expense of RM10,000 annually.

The company is subject to a 25% tax rate, and its cost of capital is 12%. The desired payback
period is three years.

Required:

a. Explain what is Investment Appraisal?

(5 marks)

b. Measure the project’s benefits and costs (Relevant Cash Flows)

(12 marks)

c. Compute two selected decision-making techniques for the project as below.

i. Payback Period
ii. Net Present Value
iii. Internal Rate of Return

d. Advise the company whether to purchase a new machine.

(8 marks)

(Total: 25 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL