Good Hope Ltd introduced a new product, NEW AGE, to its range last year. The machine used to mould each item is a bottleneck in the production process meaning that a maximum of 5,100 units per annum can be manufactured. The NEW AGE product has been a huge success in the marketplace and as a result, all items manufactured are sold. The marketing department has prepared the following demand forecast for future years as a result of feedback from customers. 2023 2024 2025 Demand (units 7100 9 100 11 100 4 100 The directors are now considering investing in a second machine that will allow the company to satisfy the excess demand. The following information relating to this investment proposal has now been prepared: Initial investment $20,000 Maximum additional output 5,000 units Current selling price $50 per unit Variable operating costs $28 per unit Fixed operating costs $15,000 per year If production remained at 5,100 units, the current selling price would be expected to continue throughout the remainder of the life of the product. However, if production is increased, it is expected that the selling price will fail to 545 per unit for all units sold. Again, this will last for the remainder of the life of the product No terminal value or machinery scrap value is expected at the end of four years, when production of NEW AGE is planned to end. For investment appraisal purposes. Good Page 10 of 11 Hope uses a nominal discount rate of 10% per year and a target return on capital employed of 20% per year. Ignore taxation.

Required:

(a)Calculate the following values for the investment proposal (14 marks) (i)net present value; () internal rate of return; in return on capital employed (accounting rate of return) based on initial investment; and. (iv)discounted payback period