1. Baraka Ltd. is considering investing in a new processing machine costing a. Sh25 million. The machine would be used for five years and thereafter be disposed off for Sh. 5 million at the end of the fifth year.

The following additional information is available:

1. Additional raw materials amounting to Sh5 million would be required 1. at the beginning of the five-year period. This would increase accounts payable by Sh2 million. These changes in working capital would reverse at the end of the fifth year.
2. The new machine would increase the companys annual gross profit from Sh12 million to Sh24 million.
3. Incremental fixed costs would amount to Shs. 2,200,000 per annum.
4. Additional machine operators would be employed at a cost of Shs. 1,600,000 per annum.
5. The new machine would be depreciated on a straight-line basis.
6. The cost of capital is 12%.
7. The corporation rate of tax is 30%. Required:

Using the net present value (NPV) method, advice the company on whether to invest in the new machine