QUESTION ONE: (16 marks) The management Mojo Ltd is in the process of modernizing its operations. The factory manager has proposed the replacement of the milling machine with a new fully computerized machine. The milling machine was purchased two years ago at a cost of sh.4 million. The economic life of the machine was five years. However, a management review has established that the machine has a further useful life of five years with a zero-salvage value. The machine could be disposed of immediately at sh.1.6 million The new machine has a purchase price of sh.8 million with an additional cost of sh.1.8 million and a salvage value of sh.2 million. The new machine will lead to increased efficiency and annual savings in cost of sh.2.1 million. The operation of the new machine will attract increase in net working capital of sh. 810,000 . The company uses straight line method of depreciation. The company's cost of capital is 10% and the corporate tax rate is 30%. Required: i. Incremental initial outlay. ii. Incremental after-tax cash inflows (benefits) iii. The terminal cashflows iv. Using the net present value approach, advise the company on whether to purchase the machine now. 3 marks INVOIIEAENT IN EXAMINATION IRREGULARITY SHALL LEAD TO DISCONTINUATION Page 1 of 3