A company plans to purchase a new machine due to the expected demand for a new product. The machine costs Ghc185,000 and it is expected that the machine shall be used for five (5) years with a scrap value of Ghc15,000. The company expects the demand for the product to be as follows: Year 1 2 3 4 5 (2 Marks) Demand (Units) 25,000 30,000 35,000 % Increase Selling Price 2% per year Variable Cost of production 3% per year Fixed production expenses 5% per year 40,000 20,000 The companys cost of capital is 10% and pays corporate tax at a rate of 25% in the related year. Calculate the Net Present Value (NPV) of purchasing the new machine advice whether it makes economic sense to buy the new machine.

(20 Marks) Question 3 a) A company plans to purchase a new machine due to the expected demand for a new product. The machine costs Ghc185,000 and it is expected that the machine shall be used for five (5) years with a scrap value of Ghc15,000. The company expects the demand for the product to be as follows: Year Demand (Units) 1 25,000 2 30,000 3 35,000 4 40,000 5 20,000 % Increase Selling Price Variable Cost of production Fixed production expenses 2% per year 3% per year 5% per year The company's cost of capital is 10% and pays corporate tax at a rate of 25% in the related year. Calculate the Net Present Value (NPV) of purchasing the new machine advice whether it makes economic sense to buy the new machine. (8 Marks) (20 Marks) Question 3 a) A company plans to purchase a new machine due to the expected demand for a new product. The machine costs Ghc185,000 and it is expected that the machine shall be used for five (5) years with a scrap value of Ghc15,000. The company expects the demand for the product to be as follows: Year Demand (Units) 1 25,000 2 30,000 3 35,000 4 40,000 5 20,000 % Increase Selling Price Variable Cost of production Fixed production expenses 2% per year 3% per year 5% per year The company's cost of capital is 10% and pays corporate tax at a rate of 25% in the related year. Calculate the Net Present Value (NPV) of purchasing the new machine advice whether it makes economic sense to buy the new machine. (8 Marks)