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Question 4: (26 marks) To improve production capacity, Flat World Pty has considered a project to purchase a new automated machine. This project requires an initial investment of $800,000. The automated machine is expected to have a useful life of 10 years with a salvage value of $46,000 at the end of year 10. Flat World Pty has always used the straight-line depreciation method in its accounting practice. With the automated machine, production and sales are expected to increase by 6,800 units per year for the next 10 years. Selling price will remain $95 per unit. Total variable cost is still $57 per unit, but the annual fixed costs will increase by $68,000 All cashflows are assumed to occur at the end of each year. The company evaluates this purchase decision using a 12% after-tax discounting rate. The corporate tax rate is generally 30% in Australia. Required: a) Given the expected increase in sales, calculate the incremental before-tax profit for each year. (5 marks/ Click or tap here to enter text. b) Calculate the annual incremental after-tax cash flows for each year for the company's project on purchasing the automation equipment. [14 marks/ (Hint: prepare a table of before and after-tax annual net cashflows, discount factor, present value of annual net cashflows) Click or tap here to enter text. c) Based on your calculations, should the company invest in the automated machine? Calculate and interpret each of the following for the project: 17 marks/ 1) Net present value Click or tap here to enter text. ii) Internal rate of Return (Hint: use Goal Seek function in Excel or trial and error method) Click or tap here to enter text. iii) Payback periods Click or tap here to enter text. -End of the Document

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