CALCULATE ACCOUNTING RATE OF RETURN

R&D Investment $2,000,000

Years 2

Ignore Tax

Manufacturing Space Available but Currently Leased at$100,000

P&E for manufacture would cost$6,000,000

Residual of$1,000,000After Years6

Working capital required$4,000,000

Working capital increases for inventory from the end of Y2 till product life of 6 years by $1,000,000

Selling price Y1 & Y2$50Selling price for Y3 & Y4$46Selling price for Y5 & Y6$42Variable Product Cost Per Unit$26

Projected P&L ITEMS (SUBJECT TO 3% INFLATION INCREASE Year on Year)

Rates and taxes ((not including income tax))$65,000

Wages and Salaries (fixed)$800,000

Advertising linked to sales:$1,000,000

Initial Promotion & marketing:$700,000

Office Costs$200,000

Other fixed expenses$320,000

Sales Research Costed: $50,000 to supply the below sales forecasts

Sales:

2020: 1000

2021: 2000

2022: 1700

2023: 1200

2024: 600

Weighted Average Cost of Capital: 5%

Investment Return before Inflation: 12%