Question 1 (20 marks) Your company policy is to invest in assets with a maximum payback of 3 years The company policy also makes provision to use the Net Present Value (NPV) as another method to select projects Only nvestment with a positive NPV will be selected Management has decided to invest in a new machine to increase the current production output The production manager has identfied a machine, and you have been tasked to evaluate the investment in the machine to determne if the company's investment policy will bee compiied with The production manager gave you the following information Cost of the new machine. R650,000 Installation cost R80,000 Useful life 4 years Your cost accountant provided you with the following information Incremental Profit before depreciation and tax (R) 180,000 Year 195,000 Year 2 Year 3 210,000 235,000 Year 4 Notes The cost of captal is 10% Depreciation on Plant and Equipment is based on the straight-line method over the useful life of the asset (This method is aliowed for tax purposes) The tax rate is 30% Required: 1 Calculate the annual cash flow (10) Calculate the net present value (NPV) and advise management accordingly (10) 2