Forward planning Limited is considering whether to invest in a project which would entail immediate expenditure on capital equipment of AED 40 000. Expected from sales from the projects are as follows.

Probability Sales volume

0.10 2000

0.25 6000

0.40 8000

0.15 10000

0.10 14000

Once sales are established at a certain volume in the first year, they will continue at the same volume in subsequent years.

The unit selling price will be AED 10, the unit variable cost AED 6 and the additional fixed cost will be AED 20000 (all cash items) the project would have a life of 6 years after which the equipment would be sold as scrap which would fetch AED 3000.

You are required to find - (1) expected value of NPV of the project (2) minimum volume of sales per annum required to justify the project.

Cost of capital of the company is 10%. Discount factor of AED 1 per annum for 6 years at 10% is 4.355 and the discount factor of AED 1 at the end of 6th year at 10% is 0.5645