PHP Files showing 404 in a Wordpress site

In a wordress site, I have to add a completely different app. In a domain as:

mydomain.com/live

I created a folder live in the document root.

When index.php or index.html are not there, it shows directory contents.
When index.html is there, it loads index.html by default.
When index.php is there, it shows 404.

Below is my .htaccess file. I am not good with the Apache Configuration. What's causing this?

AddHandler application/x-httpd-php52 .php .php5 .php4 .php3

# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>

# END WordPress