Gryffindor plc has conducted Market Research costing 5,000 which will allow the company to advertise their new to market product more effectively In order to start producing a new product, further investment in machinery of 60,000 would be needed. The machinery would have an expected life of 5 years, and a residual value of 11,000 Tax depreciation allowances will be claimed at 25% on a reducing balance basis, up until the year of disposal, when a balancing allowance will arise. The revenue is forecast to be 50,000p.a. in real terms, and costs are forecast to be 20,000 p.a. in real terms. Working capital will need to be 5,000 at the start of the project, and will remain at current prices in nominal terms) therefore the working capital requirement will increase in line with inflation each year. At the end of the project, all working capital invested to date will be released Inflation is forecast to be 2% p.a. over the next few years and the firm's real cost of capital is 6%p.a. The tax rate is 30%, and tax is payable the year after that profit is earned. Required: a) Use the Net Present Value method to assess whether the new product should be undertaken and give a recommendation b) Calculate the Modified Internal Rate of Return for the product launch