Explain the concept of incremental cash flow analysis

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Reference no: EM13226045

QUESTION 1

Jarum Industrial Tools is considering a 3-year project to improve its production efficiency. Buying a new machine press for RM611,000 is estimated to result in RM193,000 in annual pretax cost savings. The press falls in the MACRS five-year class (Table 1), and it will have a salvage value at the end of the project of RM162,000. The press also requires an initial investment in spare parts inventory of RM19,000, along with an additional RM2,000 in inventory for each succeeding year of the project. If the tax rate is 35 percent and the discount rate is 12 percent, should the company buy and install the machine press? Why or why not?Table 1: Modified ACRS depreciation allowances

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QUESTION 2

a) Explain the concept of incremental cash flow analysis and its purpose.

b) Explain the difference between a sunk cost and an opportunity cost and give an example of each.

QUESTION 3

Chong Motors just issued 225,000 zero coupon bonds. These bonds mature in 20 years, have a par value of RM1,000, and have a yield to maturity of 7.45 percent. What is the approximate total amount of money the company raised from issuing these bonds? (Assume semi-annual compounding)

Reference no: EM13226045

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