Wonder Works Pte Ltd WW produces ceramic hair curlers to sell to department stores. The production equipment costs WW $ four years ago. Currently, the net book value stands at $ An improved version of the equipment is available now for $ The new machine has a useful life of five years. The disposal value at that point in time is estimated to be $
The new machine is expected to increase unit sales by curlers per annum. The estimated unit selling price is $ for the first year.
The following table provides the unit costs for the first year:
Direct labour, hours at $ per hour : $
Direct materials :$
Fixed costs including depreciation :$
Total : $
Required:
a Derive the yearly net cash flows for the project.
b Make a reasoned recommendation as to whether WW should proceed to purchase the new machine.
c Conduct sensitivity analysis on the cost of capital to achieve a net present value of $ Utilize the IRR approach with the r trial values of and
