Question 1(Compulsory) AA Limited operates in a highly competitive market and is considering introducing a new product to expand its current range. The new product will require the purchase of a specialised machine costing GH¢825,000. The machine has a useful life of four years and is expected to have a scrap value at the end of Year 4 of GH¢50,000. The company uses the straight-line method of depreciation. The machine would be used exclusively for the new product. Due to a shortage of space in the factory, investment in the new machine would necessitate the disposal, for GH¢ 80,000 of an existing machine which has a net book value of GH¢69,000 This machine, if retained for a further year, would have earned a contribution of GH¢ 100,000 before being scrapped for nil value. The machine had a zero-tax written down value, and therefore, there will be no effect on tax depreciation arising from the disposal of the machine. The company employed the services of a consultant at a cost of GH¢120,000 to determine the demand for the new product. The consultant's estimated demand is given below: Year 1 -10.000 units Year 2 - 26,000 units Year 3 - 28,000 units Year 4 - 25,000 units The new product is expected to earn a contribution of GH¢50 per unit. Fixed costs of GH¢380,000 per annum, excluding depreciation of the tew machine, will arise as a direct result of the manufacture of the new product. The new machine will attract additional maintenance fees of GH¢20,000 each year. Taxation AA's Financial Director has provided the following taxation information: Tax depreciation 20% per annum of the reducing balance with balancing adjustment in the year of disposal Taxation rate: 30% of the taxable profits. Tax payable in the year in which it arises Other information; A weighted average cost of capital of 15% per annum is used to evaluate projects of this type The growth rate after the horizon period is 5% Please, solve explaining each step

To evaluate the project, we will calculate the Net Present Value (NPV). Step 1: Calculate Initial Investment (Year 0) The initial investment includes the cost of the new machine and the cash inflow from selling the old machine. Consultant fees are a sunk cost and are ignored. Cost of new machine: GH¢825,000 (Outflow) Proceeds from disposal of old machine: GH¢80,000 (Inflow) Initial Investment = GH¢825,000 - GH¢80,000 = GH¢745,000 **Step 2: Calculate Annual Operating