QUESTION 2 The Jackson Company is considering producing a new product. It has recently completed a $500,000 two-year market study to judge the likely popularity of the new product. Based on the results of the study, Jackson has estimated that 20,000 units of its new product can be sold annually over the next eight years at a price of $8,604 each. Variable costs per unit are $7,520 and fixed costs total $11.63 million. Working capital specifically for this project is estimated to be $2.23 million and will be returned at the end of the project's life. The project requires the purchase of a new machine costing $38 million. The machine will be fully depreciated using a straight-line method over its life of eight years. The company expects the machine to have a market value of $680,000 at the end of its life. The tax rate applicable to Jackson is 33%. The after-tax discount rate is 11% per annum. REQUIRED: (a) Advise if the cost of the marketing study should be included in the project evaluation? Explain. (2 marks) (b) Estimate the initial investment outlay of the project. (5 marks) (c) Estimate the annual after-tax operating cash flow of the project. (5 marks) (d) Estimate the terminal-year net cash flow. (5 marks) (e) Calculate the NPV of the project and advise if the project should be undertaken. (3 marks) (2 + 5 + 5 + 5 + 3 = 20 marks)