A&Z Ltd has conducted Market Research costing 250,000 which will allow the Company to advertise their new to market product more effectively. In order to start producing a new product, further investment in machinery of 50,000 would be needed. The machinery would have an expected life of 5 years, and a residual value of 5,000. Tax depreciation allowances will be claimed at 25% on a reducing balance basis, up until the year of disposal, when a balancing allowance will arise. The revenue is forecast to be 60,000 p.a. in real terms, and costs are forecast to be 35,000 p.a. in real terms. Inflation is forecast to be 10% p.a. over the next few years and the firms real cost of capital is 15% p.a. The tax rate is 33%, and tax is payable in the year after that profit is earned. Required: a) Use the Net Present Value method (including the inflation method) to assess whether the new product should be undertaken and give a recommendation. b) Calculate the Modified Internal Rate of Return for the product launch. c) Explain the difference between the nominal term approach and the real term approach to dealing with inflation in the context of Investment appraisal.