1. Aruma Ltd. evaluating an investment project which requires the importation of a new machine at a cost of Shs. 2,700,000. The machine has a useful life of six years.

Additional information:

1. The following additional costs would be incurred in relation to the 1. machine:

	Shs.
Freight	225,000
Installation and Pre-production	375,000
Import Duty	900.000

2. The machine is expected to increase the companys annual cash flows (before tax) as shown below:

Year	1	2	3	4	4	6
Increase in Cash flow (Shs.)	1,760,000	1,360,000	1,050,000	900,000	840,000	750,000

3. The machine is to be fully depreciated over its useful life using the 3. straight line method.
4. The corporate rate of tax is 30% while the cost of capital is 12%

5. The maximum acceptable payback period to the company for all capital projects is four years.