The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some errors of principle. You can assume that the statement below includes no arithmetical errors.

14.3 562 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

£000 £000 £000 £000 £000 £000 Sales revenue 450 470 470 470 470 Less Costs:

Materials 126 132 132 132 132 Labour 90 94 94 94 94 Overheads 45 47 47 47 47 Depreciation 120 120 120 120 120 Working capital 180 Interest on working capital 27 27 27 27 27 Write-off of development costs 30 30 30 Total costs 180 438 450 450 420 420 Operating profit/(loss) (180) 12 20 20 50 50

= =Return on investment (4.7%)

You ascertain the following additional information: