PAGE LAYOUT Question 4 Tim recently graduated from federation university and joined his family business. After reviewing the financial statements, Tim identified a significant increase in overhead costs, and in a further investigation, he identified that the machine repairing cost is highly frequent and the cost and the lost time have created a significant overhead budget deficit in the last financial year. The company decided to purchase a new machine to replace the existing machine, which is bought two years ago, and this machine has an expected life of five years. The new machine has an expected life of three years. Tim has gathered the below data to determine the relevant costs for the new project and decided to use incremental cash flow analysis to check the viability of the new machine. The corporate tax rate is 20% and the weighted average cost of capital is 12%. Initial cost Scrap value Existing machine $400 000 $175 000 (Now) $250 000 $45 000 $92000 New machine $760 000 $325 000 (End year 3) $350 000 $63 000 $180 000 Annual revenues Annual costs Annual depreciation a) What is incremental cash flow in a project and explain the stand-alone principle in project evaluation? Support your answer with the different types of cash flows under project evaluation techniques. (4 Marks) b) Calculate the taxable income of the project and prepare a cash flow statement for the project. (6 Marks) Click or tap here to enter text. c) Calculate the NPV of the project and should Tim go ahead with this project? (5 Marks) Click or tap here to enter text