Question 5 . Read the case study below and answer the questions based on the case study. Doctor Ink (Pty) Limited (Doctor Ink) is a company that manufactures processed meat for sale in various supermarket chains across Southern Africa. Their current blending machine needs to be replaced and they are currently assessing the machine they are most likely going to purchase. The managing director is concerned that when a previous machine was acquired, the payback period method was used for investment analysis purposes. The use of this method generated losses and destroyed value within the organisation. The financial director has proposed the use of net present value analysis (NPV) and the following information is relevant: Cost of new machine - R1 000 000 (will be replaced in 5 years' time) Cost of old machine - R20 000 Gain on sale of old machine - R420 000 Gain on sale of new machine currently - R100 000 Estimated gain on sale of new machine in 5 years' time - R286 000 Depreciation of new machine - R200 000 per annum Wear and tear allowance granted by SARS - R250 000 per annum Revenue expected to be generated for the first year is R250 000 and is expected to increase by inflation of 6% per annum, over the next five years. Variable costs are expected to be R80 000 p.a. These costs are expected to increase by inflation. Non-incremental fixed costs are expected to remain constant at R12 000 p.a. Additional Information: The WACC rate of the company is 15%. The tax rate is 28%. Gains on sales of machines are taxable at normal tax rates. Any assessed tax losses arising on the project can be set off against other taxable incomes within Doctor Ink. Required Calculate the NPV of the new machine and conclude whether the investment should be made. Your answer should indicate which items are to be included in the calculations and provide an explanation why other items are not included in the calculation