ARG Co is a leisure company that is recovering from a loss-makingventure into magazine publication three years ago. The company plans tolaunch two new products, Alpha and Beta, at the start of July 20X7, which it believes will each have a life-cycle of four years. Alpha isthe deluxe version of Beta. The sales mix is assumed to be constant. Expected sales volumes for the two products are as follows: Year Alpha Beta 1 60,000 75,000 2 110,000 137,500 Direct material costs Selling price 3 100,000 125,000 The selling price and direct material costs for each product in the first year will be as follows: Product Alpha Beta $ / unit $ / unit 9.00 23.00 4 30,000 37,500 12.00 31.00 Incremental fixed production costs are expected to be $1 million inthe first year of operation and are apportioned on the basis of salesvalue. Advertising costs will be $500,000 in the first year of operationand then $200,000 per year for the following two years. There are noincremental non-production fixed costs other than advertising costs. In order to produce the two products, investment of $1 million inpremises, $1 million in machinery and $1 million in working capital will be needed, payable at the start of July 20X7. Selling price per unit, direct material cost per unit andincremental fixed production costs are expected to increase after the first year of operation due to inflation: Selling price inflation Direct material cost inflation Fixed production cost inflation 3.0% per year 3.0% per year 5.0% per year These inflation rates are applied to the standard selling priceand direct material cost data provided above. Working capital will berecovered at the end of the fourth year of operation, at which timeproduction will cease and ARG Co expects to be able to recover $1.2million from the sale of premises and machinery. All staff involved inthe production and sale of Alpha and Beta will be redeployed elsewherein the company. ARG Co pays tax in the year in which the taxable profit occurs atan annual rate of 25%. Investment in machinery attracts a first-yearcapital allowance of 100%. ARG Co has sufficient profits to take thefull benefit of this allowance in the first year. For the purpose ofreporting accounting profit, ARG Co depreciates machinery on a straightline basis over four years. ARG Co uses an after-tax money discount rateof 13% for investment appraisal. Required: (a) Calculate the net present value of the proposed investment in products Alpha and Beta as at 30 June 20X7. (18 marks) (b) Identify and discuss any likely limitations in the evaluation of the proposed investment in Alpha and Beta.