You work in the finance department of Toms Gates Pty Ltd. The company is considering the prospect of purchasing manufacturing equipment and your manager has asked you to do a financial analysis to help inform the company's decision. The equipment costs $366,000 installed and, according to the Australian Taxation Commissioner schedule, will have an effective life of 8 years.

Your manager has asked you to use the straight-line depreciation method (i.e. allocate cost evenly over the useful life) for tax purposes and management expects it will be able to sell the equipment at the end of its effective life for $170,000.

Your manager has given you the following data to use in your analysis. It is estimated that the additional equipment will increase annual sales by $260,000 and operating expenses will be 70% of revenues. The expansion is also expected to increase sales of other food and drink within the business by $80,000 with associated costs averaging 30% of sales. An additional investment of $65,000 inventory will also be required. The company's tax rate is 30% and the project's cost of capital is 11.25%.

(a) Prepare a schedule of relevant cash flows expected from this project.

(b) Calculate the project NPV.

(c) Advise management with reasons on whether they should or should not invest in this project.