Fairfield Healthcare Limited is analysing a project to produce industrial gas masks.Producing the gas masks will force Fairfield to purchase a new fully automated $1.45 million production machine. The machine will be fully depreciated using the straight-line method over its 4-year life, at the end of which the machine can be sold for $105,000. Fairfield forecasts that it can sell 23,400 units of gas masks per year from year 1 to year 4. The selling price of the gas mask is $116 per unit from year 1 to year 4. The pre-tax variable cost is $85 per unit in year 1 and year 2, and it becomes $89 per unit from year 3 to year 4.The machine will require a fixed pre-tax maintenance cost of $98,000 per year. Fairfield will make an initial investment in net working capital of $82,500.The company is subject to the 32% marginal tax rate and its cost of capital is 16% p.a.

(a) What is the depreciation expense incurred for each of the next 4 years? What is the project's operating cash flows for each of the year from year 1 to year 4?

(b) What is the total cash outflows in year zero? What is the after-tax cash flow from selling the machine at the end of year 4?

(c) What is the net present value of the project?Explain whether or not Fairfield should accept the project.