Investment appraisal practice questions 1. PH Ltd is an engineering company that is considering a project to produce a tracking device for vehicles to be sold in the entire SADC region. The company has already down the market research over the device and are now considering whether or not to produce the device. The Board of Directors will soon meet to make a final decision and has the following information available to help it decide: (0) The cost of developing the device has been K1,750,000 to date and the company is committed to spending a further K400,000 within the next two months. (m) The company has spare production capacity and can produce the device using machinery that will cost K4,700,000 and which will be purchased immediately. It is expected to be sold at the end of four years for K800,000 (ii) Total fixed costs identified with the production of the device are K1,725,000 per year. This includes a depreciation charge in respect of the machinery of K975,000 per year and a charge allocated to represent a fair share of the fixed costs of the business as a whole of K250,000 per year. (iv) The devices are expected to sell for K2,650 each and the marketing department believes that the business can sell 800 devices per year over the next four years. (w) The variable costs of production are K550 per device. (vi) Working capital will be K350,000 throughout the projects life. (vi) The company has a cost of capital of 12%. Ignore taxation. Required: Calculate the net present value of producing and selling the new device