Nab-Awinpoak Ltd wants to determine the relevant operating cash flows associated with the proposed purchase of new piece of a new piece of equipment that has an installed cost of GH10 million and is depreciated over five years on straight line basis starting from the first year. The firm's financial analyst estimated that the relevant time horizon for analysis six years. She expects the revenues attributable to the equipment to be GH15.8 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 GH12.2 million in the first year and to increase by 4 per cent 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%. (Note: round all cash flow calculations to the nearest GH0.01 million). Required:

a) Find the relevant incremental cash flows for year zero through to year six. (10 marks) b) Using the cash flow found in part (a), determine

i. ROCE (2 marks)

ii. the NPV (2 marks)

c) Based on your findings in part (b), would you recommend that Nab-Awinpoak Ltd purchase the equipment? Why?