As a Galaxy Holdings Plc junior management accountant, the Finance Director wants your calculations and recommendation regarding an expansion plan the Board is considering, which includes a chain of factory outlet stores.

Below are the figures for the first one that is planned for a central Manchester location next year.

Company policy dictates that any decision should be based on the results of calculating Net Present Value $($NPV$)$ of $3$ years of cash flows using a cost of capital of $12\%,$ Payback Period $($PBP$)$ must be less than $3$ years, and the Internal Rate of Return $($IRR$)$ of the project should provide a $5\%$ cushion in case of increases in inflation or interest rates.

The investment consists of $100,000$ for the land, building costs of $158,000,$ and $36,600$ for fittings and equipment.

The cash flows in year $1$ are expected to be: total sales revenue $600,600$; the cost of Axor products sold $165,900$; Bozon stock sold $118,860$; staff costs $24,780$; light & heat $35,196$; other overheads $134,904.$ The cash flows for years $2$ and $3$ are the same, but are expected to increase by $2\%$ inflation each year.

Requirements for Question $2$ part $($b$)$

Using the information above and in accord with the above stated company policy you are required to calculate:

$2\mathrm{.}2\mathrm{.}1.$ Net Present Value $($NPV$)(4$ marks$)$

$2\mathrm{.}2\mathrm{.}2.$ Payback period $($PBP$)$ and Discounted Payback Period $($DPBP$)(4$ marks$)$

$2\mathrm{.}2\mathrm{.}3.$ Internal Rate of Return $(1$ mark$)$

$2\mathrm{.}2\mathrm{.}4.$ Based on your calculations do you recommend the investment is made and the opening of the new manufacturing unit? $(3$ marks$)$

$2\mathrm{.}2\mathrm{.}5.$ Critically discuss the limitations of the above project appraisal techniques used and any other recommendations to the board. Using academic references. $(3$ marks$)$