(a) International Foods Company (IFC) currently processes seafood with a unit it purchased five years ago. The unit, which originally cost $500,000, currently has a book value of $250,000. Management is considering the option of replacing the existing unit with a brand new, high speed unit. The new unit will cost $700,000. Shipping and Installation will cost a further $50,000. Management has forecasted an initial increase in net working capital of $30,000. The additional net working capital will be recovered in full at the end of the project's life. The new unit will be depreciated on a straight-line basis over 5 years to a zero balance. The existing unit is being depreciated at a rate of $50,000 per year. This existing unit can be sold for $275,000 today.

If IFC purchases the new unit, annual revenues are expected to increase by $110,000. Annual operating costs (excluding depreciation) are expected to fall by $15,000. The life of the proposed new unit is 5 years. The company's cost of capital is 12%. The company tax rate is 30%. The new unit can be sold for $170,000 after 5 years.

(i) Calculate the net cash flow in year 0(4 marks)

(ii) Calculate the net cash flow in year 1(4 marks)

(iii) Calculate the net cash flow in year 5(4 marks)

(iv) Calculate the NPV (2 marks)

(v) Should the company proceed with the investment?(2 marks)

(vi) Will you reverse your decision in (v) if the cost of capital is 10%? Show your workings(4 marks)