Beacon Chemicals plc is considering buying some equipment to produce a chemical named X14. The new equipments capital cost is estimated at GHC100,000. If its purchase is approved now, the equipment can be bought and production can commence by the end of this yaer. GHC50,000 has already been spent on research and development work. Estimates of revenue and costs arising from the operation of the new equipment appear below:

	Year 1	Year 2	Year 3	Year 4	Year 5
Sales price (GHC per litre)	100	120	120	100	80
Sales volume (litres)	800	1,000	1,200	1,000	800
Variable cost (GHC per litre)	50	50	40	30	40
Fixed costs (GHC000)	30	30	30	30	30

If the equipment is bought, sales of some existing products will be lost, and this will result in a loss of contribution of GHC15,000 a year over its life.

The accountant has informed you that the fixed costs include depreciation of GHC20,000 a year on the new equipment. They also include an allocation of GHC10,000 for fixed overheads. A separate study has indicated that if the new equipment were bought, additional overheads, excluding depreciation, arising from producing the chemical would be GHC8,000 a year. Production would require additional working capital of GHC30,000.

For the purposes of your initial calculations ignore taxation.

Required:

Deduce the relevant annual cash flows associated with buying the equipment.\

Deduce the payback period.

Calculate the net present value using a discount rate of 8%.

Hint: You should deal with the investment in working capital by treating it as a cash outflow at the start of the project and an inflow at the end.