Bracco Ltd. plans to buy a new equipment to increase the production of the various items they produce. The cost of the equipment is $1,600,000 and it is estimated to have an expected life of five years. Additional investment in working capital of $180,000 will be required at the start of the first year of operation. At the end of five years, the machine will be sold for a scrap value expected to be 6% of the initial purchase cost of the machine. The equipment will not be replaced. Production and sales from the new equipment are expected to be 200,000 units per year. Each unit can be sold for $32 per unit and will incur variable costs of $22 per unit. Incremental fixed costs arising from the operation of the equipment will be $320,000 per year. Bracco Ltd. has an after-tax cost of capital of 15% which it uses as a discount rate in investment appraisal. The company pays profit tax at an annual rate of 35% per year. Ignore capital allowances and inflation. Required: (a) Calculate the net present value of investing in the new equipment and advise whether the investment is financially acceptable. (20 marks) (b) Calculate the payback period if management invests in the new equipment and advise whether the investment is financially acceptable. (1 mark) (c) State two advantages and two disadvantages of using the net present value approach for investment decisions. (4 marks)