Claross Company Ltd (CCL) wishes to determine the relevant operating cash flows associated with the proposed purchase of a new piece of equipment having an installed cost of Tshs 100 million and falling into the 5-year depreciation class. The firm’s financial analyst estimated that the relevant time horizon for analysis is 6 years. She expects the revenues attributable to the equipment to be Tshs 158 million in the first year and to increase at 5% per year through year 6. Similarly, she estimates all expenses other than depreciation attributable to the equipment to total Tshs 122 million in the first year and to increase by 4% per year through year 6. She plans to ignore any cash flows after year 6. The firm has a marginal tax rate of 40% and its required return on the equipment investment is 13%. (Hint: Use straight line depreciation schedule) 

Required: 

a. Find the relevant incremental cash flows for years zero through 6. 

b. Using the cash flows found in part a, determine the NPV and IRR for the proposed equipment purchase. 

c. Based on your findings in part b, would you recommend that CCL purchase the Equipment? why?