M Construction Sdn Bhd is considering investing in a new construction equipment costing RM150,000. Its life is expected to be four years and it will have no scrap value at the end of this period. The following details are given relating to the machinery’s activities: Unit selling price is RM40.00 and unit variable costs of production are:
UEM Construction Sdn Bhd is considering investing in a new construction equipment costing RM150,000. Its life is expected to be four years and it will have no scrap value at the end of this period. The following details are given relating to the machinery’s activities:
- Unit selling price is RM40.00 and unit variable costs of production are:
|
RM |
Direct materials |
6.00 |
Direct labour |
3.80 |
Variable overheads |
5.20
|
- Sales volume relating to production of the construction equipment is expected to be:
Year |
Sales Volume (units) |
1 |
2,100 |
2 |
2,200 |
3 |
2,500 |
4 |
2,600
|
- Fixed costs amount to RM12,000 per annum. One quarter of the fixed costs is cash flow
related items.
- The company anticipates a cost of capital to be 10%.
Question :
a) Explain the
b) Based on your answer in (a) above, should the project be accepted? Explain your decision.
c) “
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