Gramin plc is a manufacturer of GPS systems and has just bought the technology and rights to make and sell a solar powered personal GPS unit, to be called the Solway. A firm of management consultants has carried a feasibility study for the company at a cost of t250,000, which concluded that the Gramin will have a market for the Solway for 5 years before it becomes technically obsolete. The management consultants have forecast the sales will be: Year Sales (units) r 10,000 2 12,000 3 10,000 4 8,000 6,000 The Solways are expected to sell for f370 per unit and the variable cost per unit is expected to be 190. Relevant fixed costs per vear (excluding depreciation, machine maintenance and marketing) are expected to be f450,000. lf the project goes a head, ma intena nce costs would be 140,000 per a n nu m. Additional working capital of f350,000, primarily lnventory and receivables, would be required atthe beginning ofthe project. Annual marketingcostswouldbef3SO,OOOperannumforeachofthe5years. Allannual marketing occurs at the beginning of each year. To make the Solway, there will be two requirements for assembly machinery: (i) Machinery for stage 1 of the production will be purchased at a cost of f1,200,000. lt is expected that at the end of 5 years, it will be sold for t200,000. (ii) Thecompanyalreadyhassuitablemachineryforthestage2oftheproductionprocess. This machinery has a book value of 260,000 while its oriSinal cost was f520.000. lf not used on this project, this machinery would be sold now for 225,000. lf it is used on this project, this machinery will have to be adapted at a cost of f120,000. This adapted machinery would be sold at the end of the proiect for f40,000 The company's cost of capital is assumed lo be 1I% per annum. The company normally expects projects to have an IRR in excess of 30%.