ARGEPlcisaleisurecompanythatisrecoveringfromaloss-makingventureintomagazinepublicationthreeyearsago.Thecompanyplanstolaunchtwonewproducts,AlphaandBeta,at the start of July 20XX, which it believes will each have a life-cycle of four years. Alpha isthedeluxeversionofBeta.Thesalesmixisassumedtobeconstant.Expectedsalesvolumesforthetwoproductsareasfollows:

Year	1	2	3	4
Alpha	60,000	110,000	100,000	30,000
Beta	75,000	137,500	125,000	37,500

Thesellingpriceanddirectmaterialcostsforeachproductinthefirstyearwillbeasfollows:

Product	Alpha	Beta
Directmaterialcosts	/unit12.00	/unit5.00

Sellingprice 31.00 23.00

Incremental fixed production costs are expected to be 1 million in the first year ofoperationandareapportionedonthebasisofsalesvalue.Advertisingcostswillbe

500,000inthefirstyearofoperationandthen200,000peryearforthefollowingtwoyears.Therearenoincrementalnon-productionfixedcostsotherthanadvertisingcosts.

Inordertoproducethetwoproducts,investmentof1millioninpremises,1millioninmachineryand1millioninworkingcapitalwillbeneeded,payableatthestartofJuly20XX.

Sellingpriceperunit,directmaterialcostperunitandincrementalfixedproductioncostsareexpectedtoincreaseafterthefirstyearofoperationduetoinflation:

Sellingpriceinflation 3.0%peryearDirectmaterialcostinflation 3.0%peryearFixedproductioncostinflation5.0%peryear

These inflation rates are applied to the standard selling price and direct material cost dataprovidedabove.Workingcapitalwillberecoveredattheendofthefourthyearofoperation,atwhich time production will cease and ARGE Plc expects to be able to recover 1.2 millionfromthesaleofpremisesandmachinery.AllstaffinvolvedintheproductionandsaleofAlphaandBetawillberedeployedelsewhereinthecompany.

ARGE Plc pays tax in the year in which the taxable profit occurs at an annual rate of 25%.Investment in machinery attracts a first-year capital allowance of 100%. ARGE Plc hassufficient profits to take the full benefit of this allowance in the first year. For the purpose ofreportingaccountingprofit,ARGEPlcdepreciatesmachineryonastraight-linebasisoverfouryears.ARGEPlcusesanafter-taxmoneydiscountrateof13%forinvestmentappraisal.

Required:

i)CalculatethenetpresentvalueoftheproposedinvestmentinproductsAlphaandBetaas of30June 20XX.