Herald Ltd introduced a new product, NEW ERA, 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 ERA 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 because of feedback from customers.

Year $2022202320242025$

Demand Units $71009100111004100$

Initial investment $$20000$

Maximum Additional output $5000$ units

Current selling price $$50$ per unit

Variable operating cost $$28$ per unit

Fixed operating cost $$15000.$

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 fall to $$45$ 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 ERA is planned to end. For investment appraisal purposes, Herald uses a nominal discount rate of $10\%$ per year and a target return on capital employed of $20\%$ per year. Ignore taxation.

$($a$)$Calculate the following values for the investment proposal:

$($i$)$net present value; $($ii$)$ internal rate of return; $($iii$)$return on capital employed $($accounting rate of return$)$ based on initial investment; and. $($iv$)$discounted payback period.

$($b$)$Discuss your findings in each section of $($b$)$ above and advise whether the investment proposal is financially acceptable.

$($c$)$Briefly explain the key steps that should be included in a company's capital budgeting process.