QUESTION 3 (20 Marks) REQUIRED: Use the information provided below to calculate the following for the project 3.1 Initial investment (7 marks) 3.2 operating cash flows (5 marks) 3.3 terminal cash flow (8 marks) INFORMATION Husqvarna Limited is considering the replacement of machinery that has reached the end of its useful life. The machinery is expected to cost R500 000. This amount excludes installation costs of R50 000. The machine will be depreciated on a straight line basis over its five year useful life. Working capital will increase by R80 000 as a result of the new investment. The carrying value of the old equipment is RO, but it is expected to be sold for R12 000. Additional removal costs of R2 000 will be incurred. The company pays tax at a rate of 28%, Net working capital on the old equipment of R50 000 is expected to be recovered. The following increases in net operating profit after taxes (NOPAT) are expected over the useful life of the new machine: Year 1 2 3 4 5 Increase in NOPAT R 140 000 145 000 160 000 170 000 150 000 In 5 years the old machine will have no resale value but the same removal costs of R2 000 will have to be incurred. The new machinery is expected to have a carrying/book value of RO at the end of its useful life but is expected to be sold for R40 000. The cost of removal of the new machine will be R5 000. The net working capital of R80 000 is expected to be recovered at the end of year 5