A company is considering purchase of machinery which costs TZS $800,000$ and which has an

estimated life of $10$ years. This machine will generate additional sales of TZS $400,000$ per year

while increased costs and maintenance will be TZS $100,000$ per year. The cost of the machine is

depreciated on a straight line and has no salvage value at the end of its $10$ years life. The

company has a cost of capital of $12$ percent and a corporate tax rate of $40$ percent.

You are required to calculate:

$($a$)$ Annual cash flow

$($b$)$ The Net Present Value

$($c$)$ Profitability Index

$($d$)$ The payback period

$($e$)$ Internal rate of return.

Should the company purchase the new machine?