Cando Ltd is considering investing R40 million in equipment which will generate a profit before tax of R 16 million per year for 5 years, this will replace the current equipment in the firm which was purchased 3 years ago. The installed cost of the current equipment was R20 milion. The present machine is written off over 4 years. The installation cost expected to bring the new equipment to the firm premises is R0.5 million. An increase in net working capital of RS00 000 is expected. The company is able to depreciate the new equipment over a 5 -year straight line method which is the same as what SARS will aliow for tax purposes. The present equipment can be sold today for R6 000000 . The expected operating cash flow for the current equipment is R12.46 million for the years under review. The company tax rate is 29% and the cost of capital is 14%. REQUIRED: b. Determine the initial investment of the proposed replacement: \begin{tabular}{|l|l|l|} \hline Installed cost of asset \\ \hline Cost of new asset \\ \hline - Installation cost \\ \hline sale of old asset \\ \hline \begin{tabular}{l} Proceeds from sale of old \\ asset \end{tabular} & R \\ \hline+/ Tax on sale of old asset & (R & \\ \hline+/ Changes in net working & \\ \hline capital \\ \hline Initial investment \\ \hline \end{tabular}