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(c) Peter James is an investment centre manager in the divisionalized company named the T. Tilling Co. Peter has an opportunity to invest f60000 now in machinery that will genera te the following data over the next 3 years:

Variable costs per item produced Revenue per item Annual maintenance costs associated with f

5.00 7.00 the new machinery 620.00 The number of items expected to be sold are 15500, 18600 and 19600 in years 1,2 and 3 respectively.

The company's policy is to depreciate equipment and machinery on the straight line basis and a minimum rate of return of 20% is required on new investments. Peter's current rate of return is 30% as measured by net income after depreciation expressed over the net book value of assets at the beginning of the year.

Assume that net cash flows are equal to net income/contribution before depreciation. At the end of the third year, the machinery has no scrap or salvage value.

Required: