Unicom Co plans to buy a new machine to replace an old machine. The cost of the machine, payable immediately, is $$800,000$ and the machine has an expected life of five years. Additional investment in working capital of $$90,000$ will be required at the start of the first year of operation. An additional injection of $$50,000$ in working capital is expected at the end of year three. At the end of five years, the machine will be sold for scrap, with the scrap value expected to be $5\%$ of the initial purchase cost of the machine. The old machine was bought $5$ years ago for $$400,000$ and now has a book value and scrap value of $$10,000.$ The market value of the old machine is $$20,000.$ The company depreciates all machinery down to scrap value.

Produiction and sales from the new machine are expected to be $100,000$ units per year. Each unit will have a contribution margin of $$5$ and selling price and variable cost$-$inflation expected to be $3\%$ per year. Prior to purchase of the machine, total fixed costs per year were $$180,000$ but with the new machine, total fixed costs will rise to $$340,000$ per year.

Unicom Co has an after$-$tax cost of capital of $12\%$ which it uses as a discount rate in investment appraisal. The company pays profit tax an annual rate of $35\%$ per year.

Required:

A$.$ Calculate the net present value of investing in the new machine and advise whether the investment is financially acceptable.

$(11$ marks$)$

B$.$ Calculate the internal rate of retum of investing in the new machine and advise whether the investment is financially acceptable.

$(4$ marks$)$