(a) Kamelwa Eden Limited (KE), is considering manufacturing and selling an economy e-reader Primary aimed at commuters enabling them to browse, buy and download books and other digital media at quick download speeds. KE aims at being the world best to the satisfaction of its shareholders and its primary objective is to maximize the shareholders wealth. A firm of management consultants has carried out a feasibility study for the company at a cost of K250,000. The company uses a 12% cost of capital to assess its capital investments. KE expects investments to deliver positive pre-tax Net Present value . the Corporate tax is 30%. This amount is to be paid at the end of year 1.There would also be two requirements for production machinery. Some existing machinery could be modified at a cost of K1,400,000 to undertake the first stage of production. For testing the product , the company already has suitable machinery which is not in use; it has a book value of K800,000. This would be difficult to dismantle and dispose of and its net realizable value is K600,000. If the project goes ahead, machinery maintenance costs of K100,000 per annum will be incurred; there would be additional working capital requirements of K600,000 at the beginning of the project that would arise. It is the primary objective of KE to maximize the shareholders wealth . These working capital requirements would be recovered at the end of four years. Initial marketing costs, to be paid for as soon as the project is approved, would be K300,000, and annual marketing costs would be K200,000 per annum for the full four years. The supplier of the existing machinery has agreed to refund 50% of the total marketing cost. This refund would be given equally in years 3 and 4 of the project. The selling price and cost per unit is proposed as follows: K K SELLING PRICE 500 DIRECT MATERIALS 100 DIRECT LABOUR 70 VARIABLE OVERHEADS 120 290 GENERA FIXED OVERHEADS (ABSORBED) 90 BANK INTEREST (ABSORBED) 20 110 TOTAL 400 PROFIT 100 ADDITIONAL INFORMATION General fixed overheads do not include the costs of a specialized fabricating machine. These costs are K2,000,000 (Including annual depreciation of K100,000) to be divided over the four-year useful life of the e-reader product. As this machine is a specialized machine the net realized value is nil.The Management consultants have suggested that the product would have a four-year life before becoming obsolete and being superseded by next generation devices. From Market research, KE expects the sales price to increase by 10% in each of years 2 and 3. In year 4, as the product is reaching the expected end of its life, the sales price will revert to the year 2 sales price to encourage sales. Market research also indicated that year 1 sales can be forecast at 4,000 units. Sales volumes are likely to increase by 10% respectively in each of years 2 and 3, but will stay at the year 3 level in year 4 All variable cost (direct materials, direct labour, and variable overheads) are expected to increase by 5% in year 2 and remain at year 2 level for the remaining life cycle of the product. REQUIRED: (i) Calculate the Net Present value of the investment proposal [14 marks ] (ii) Explain how the primary objective of KE LTD can be achieved. [6 marks]