Question 5: (24 marks) Ferris Industries is planning to replace its old gament The old equipment cost was $350 000 five years ago. The old equipment is fully depreciated If the new equipment is purchased, arrangements will be made to sell the old equipment. The old equipment is expected to be sold for only S20 000 on 1 January 2021 The new equipment will be placed in service on my 2021. The details regarding the proposal are as follows Expected acquisition cost $390 000 Expected installation cost $20 000 Expected investment allowance in Year 1:15 Estimated useful life 7 years Expected salvage value which can be realised upon its desposal at the end of years 530 000 Expected increase in sales due to the special production run of the new equipment The selling price per unit is expected to remain 5300 The variable cost per unit is expected to be $350 Expected increase in annual fixed coses de the special production rum of the new equipment is 562000 It is assumed that all cash flows occur at the end of each year. The taxation depreciation on the equipment would be per annum using the straight-line method The company is subject to a 40% The company uses a 12% after-tax discount Required: a) Calculate the incremental profit before tas) for each year due to the expected increase in sales. (5 marks) Click or tap here to enter test b) Calculate the annual incremental after-tax cash flows for each year for Ferris Industries proposal to acquire the new equipment (12 marks) (Hint: prepare table of before and after-tas al cashflows, discount factor, present value of annual cashflows) Click or tap here to enter c) Should Ferris Industries invest in the new equipment? Answer on the basis of your calculations. Calculate and interpret the following for the proposed investment, the after-tax: (7 marks) i) Net present value Click or tap here to enter text 1) Internal rate of Return (Itintase Goal Seek function in Excel or trial and error method Click or tap here to enterest i) Payback periods Click or tap here to entertext -End of the Document Question 5: (24 marks) Ferris Industries is planning to replace its old gament The old equipment cost was $350 000 five years ago. The old equipment is fully depreciated If the new equipment is purchased, arrangements will be made to sell the old equipment. The old equipment is expected to be sold for only S20 000 on 1 January 2021 The new equipment will be placed in service on my 2021. The details regarding the proposal are as follows Expected acquisition cost $390 000 Expected installation cost $20 000 Expected investment allowance in Year 1:15 Estimated useful life 7 years Expected salvage value which can be realised upon its desposal at the end of years 530 000 Expected increase in sales due to the special production run of the new equipment The selling price per unit is expected to remain 5300 The variable cost per unit is expected to be $350 Expected increase in annual fixed coses de the special production rum of the new equipment is 562000 It is assumed that all cash flows occur at the end of each year. The taxation depreciation on the equipment would be per annum using the straight-line method The company is subject to a 40% The company uses a 12% after-tax discount Required: a) Calculate the incremental profit before tas) for each year due to the expected increase in sales. (5 marks) Click or tap here to enter test b) Calculate the annual incremental after-tax cash flows for each year for Ferris Industries proposal to acquire the new equipment (12 marks) (Hint: prepare table of before and after-tas al cashflows, discount factor, present value of annual cashflows) Click or tap here to enter c) Should Ferris Industries invest in the new equipment? Answer on the basis of your calculations. Calculate and interpret the following for the proposed investment, the after-tax: (7 marks) i) Net present value Click or tap here to enter text 1) Internal rate of Return (Itintase Goal Seek function in Excel or trial and error method Click or tap here to enterest i) Payback periods Click or tap here to entertext -End of the Document