Part B: Answer all the questions (15 marks each) Question 1: (15 marks) KB Machine Limited is considering investing $3 million in new machinery, Model X. If the new model is acceptable, the old machine will be disposed at $500,000 immediately. A feasibility study, completed by consultants at a cost of $300,000, has confirmed that the equipment will help increase output and improve quality. The expected sales so generated amount to $1 million per year over the life of the project. The equipment will depreciate on a straight-line basis to a zero book value over the estimated life of five years. Cost of goods sold and operating expenses related to the projects are predicted to be 20% of sales. An extra investment in inventory for spare parts and accessories of total $600,000 will be required at the beginning of the project and will be fully recovered at the end of the project. The corporation tax rate is 20% payable at end of the relevant year. Assume the cost of capital is 10% Required: (a) Explain why net present value is a superior method of investment analysis compared to the other valuation methods. 2 marks (b) What is the initial investment outlay of the project? 2 marks (c) i) What is the annual depreciation expense of the machinery? 1 marks ii) What are the earnings before interest and tax (EBIT) and annual cash flow of the project for the years 1 to 4? 3 marks iii) What is the terminal cash flow in Year 5? 2 marks (d) Compute the net present value of the project and the internal of return of the project? and advise whether the proiect is acceptable or not? 5 marks