PCW Co is a listed company that operates in the automobile industry. Due to an increase in local demand for the companys products, PCW Co decides to invest in a new machinery. Such an investment project requires some initial investment in working capital of $300,000. And the investment in working capital is subject to general inflation, which is forecasted to be 5% per annum. The cost of the new machine is $3 million. Each year, the new investment is estimated to generate 7,000 products and all of them are expected to be sold. For simplicitys reason, there is no scrap value of the machine. The usual lifetime of the machinery would be 3 years, after which it is supposed to be replaced. The costs and selling price in current price terms are summarised as follows:

		Annual sector-specific inflation
Variable costs	$100 / unit	6.0 %
Incremental fixed costs	$200,000 / year	4.5 %
Selling price	$400 / unit	4.0 %

Capital allowance on plant and machinery is on a 25% reducing-balance basis, with the remaining allowance to be claimed in full during the final year of the investment project.

The current corporate tax rate is 35%. The company has a nominal (money-terms) after-tax cost of capital of 10%.

Required:

1. Calculate the net present value of the planned purchase of the machine using a nominal (money term) approach and comments on its financial acceptability. (11 marks)
2. Discuss the following methods involved in investment appraisal:
   1. Real terms approach (2 marks)
   2. Written down allowance