Iiyama plc manufactures computer monitors in the UK. You are a financial analyst in the company. The company is now considering a new project on High-Definition PC monitors. The project life is eight years and needs an initial capital investment of 10 million. It is expected that the scrap value of the investment at the end of project life would be 10% of the original investment cost. This new project would bring annual sales revenue of 20 million in the first year. After the first year, the annual sales are expected to grow at a real rate of 7.2% per year. The annual inflation rate is expected to be 2.0% each year. It is expected that the gross profit margin is 12.5% every year. The new project will have other indirect annual operating expenses, which is estimated to be 2.5% of its annual sales. It is estimated that a further 1.05 million per year of Iiyama plcs existing indirect overhead costs are to be apportioned to the new product project. As part of the evaluation of the project, the company had paid a consulting firm 0.65 million to perform a test marketing analysis. The expenditure was made last year but is yet to be paid. Corporation tax would be payable at 20% in the year in which it arises. The depreciation method applied for the project is decided to be straight line depreciation approach. To fund the project, the company has decided to make a rights issue of ordinary shares. The company has a reliable history of dividend payments and is expected to pay dividends annually for the foreseeable future. The annual dividend paid by the company on its ordinary shares has grown from 0.15 per share ten years ago to the present level of 0.25 per share and is expected to continue to grow at a similar rate in the future. The companys ordinary shares are currently trading at a price of 4.8 ex-dividend. In a board meeting, one of the companys directors has asked why the company is choosing to make a rights issue of ordinary shares instead of issuing preference shares. (750) Required: Evaluate the new project with the Net Present Value (NPV) technique.

You need to explain your reasons for including or excluding any of the information provided in this case study.