Question 06: TMC is considering expanding into a new variation of furniture that will use wrought iron as the main raw material. The necessary information related to the project is as follows - The project will require allied to purchase a new equipment worth $800,000 Inventory will increase by $180,000 and accounts payable will increase by $100,000. All other working capital components will remain the same. The project will last for 4 years. The company forecast the following sales: 250,000 units in year 1; 270,000 units in year 2; 225,000 units in year 3 and 200,000 units in year 4. Each unit sales for $20 The fixed cost of the project will be $1,000,000 per year, and the variable cost associated with producing each unit is $15 per unit. The company uses a straight-line depreciation. For tax purpose, the asset is depreciated to zero. When the project is completed at the end of year 4, the company expects that it will be able to salvage the equipment for $40,000 and that it will fully recover the NOWC. The estimated tax rate is 34%. Calculate the estimated cash flow. (5 Marks) Question 07: Virat Kohli Welders is planning to replace an old machine with a new one to improve efficiency in its production process. The machine will increase the efficiency as it is more modern and will result in an incremental savings of $80,000 per year. The old machine was bought 3 years ago at a cost of $270,000. The new machine will cost $420,000. Both machines have useful lives of 6 years. The machines are depreciated to zero for tax purpose over the six-year life using a straight-line depreciation method. The tax rate is 34% and the required rate of return is 12%. The old machine has no salvage value at the end of its life but can be sold now at a cost of $100,000. The new machine will have a salvage value of $80,000 at the end of its life. Should the new machine be purchased? (6 Marks)