$1\mathrm{.}2.$ Liverpool Ltd is considering investing in new manufacturing equipment. They

have given up on their aspirations on being a successful football business and

have entered the world of manufacturing plasticware. They are considering

investing in a revolutionary piece of equipment which will yield the following

analysis:

Cost of equipment $-$ R$1000000$

Revenue $($all cash$)$

Year Income

$1$ R$700000$

$2$ R$650000$

$3,R500000$

Expenditure

Included in here is a provision for stock losses.

Further details are as follows:

The Receiver of Revenue does not allow the provision for stock losses as a

tax deduction.

Salvage value of equipment at end of year $3-$ R$100000$

There is a tax impact on the salvage value.

Tax rate $-28\%$

Discount rate $-10\%$

Required:

Calculate the net present value of the project and advise whether the project should

be accepted or rejected