K_ey Financial Data SLF Ltd is intending to invest in new capital equipment and premises to undertake the planned expansion into the Southwest of England. Having undertaken some market research, Megan has provided the following financial infon'nation to the team at Doe Accountancy. The cost of the new equipment will be EEEDD and is expected to last for four years. The residual value of the equipment at the end of the investment period will be 5D.D{l {in money terms]. These initial capital costs are for vans, vehicles. digging machinery and tree felling equipment. The additional storage and warehousing space Iji.eu the premises] will be rented and the rental costs are included in the xed costs below. Megan has worked with Phil regarding the potential business opportunity, and they have predicted the following increased sales volumes. These volumes represent the increased number of jobs that they will be able to complete, given the expansion. Incremental volumes in completed jobs over the next 4 years are as follows: Year 1 2 3 4 Additional volumes [No. of jobs} 350 355 405 41G Based on their current selling prices and after undertaking market research* the average price for a job has been ascertained as 1,4so.oo per job and the average variable cost of completing each job has been timated at 95l} per job. Annual incremental xed production overheads are expected to be Edtl per annum* as a result of the decision to undertake the expansion. The prices, variable costs and xed costs are in real terms. Prices. variable costs and xed costs are expected to increase due to ination as follows: Average price per job 2.0095 per annum Average variable cost per job 3.0m; per annum Fixed costs and overheads 53095 per annum The business advisory team at One Accountancy ascertained the following information for the cost of capital: Real cost of ca pital Sum-E General Ination 1.5096 As part of their discussions, Megan and Phil have budgeted for the following increased marketing budget (in money terms): - Year 1 2 3 4 Expenditure E15,000 E17,000 E18,000 E18,500 Additional transportation costs associated with the project are as follows:- Year 1 2 3 4 % of sales revenue 1% 1.2% 1.4% 1.4% The working capital requirements associated with the project are (in money terms): - Year 1 2 3 4 Expenditure E15,000 E18,000 E22,000 E24,000 Other market research costs already incurred on the project have amounted to f17,000. SLF Ltd pays corporation tax at the rate of 18% and there is a one-year delay on paying tax. Capital allowances can be claimed at 25% on a reducing balance basis. KPIs - Key Performance Indicators As part of discussions with Megan and Phil, the team at One Accountancy have advised upon and agreed the following KPIs: Payback Period Less than 3 years Target Accounting Rate of Return (ARR) 22% NPV Must meet general decision rules IRR Must meet general decision rules