Kitchen Electrical Company is planning to introduce a food blender Project A - to its line of small home appliances. Annual sales of the blender are estimated at 7,000 units at a price of $75 per unit. Variable manufacturing costs are estimated at $46 per unit, incremental fixed manufacturing costs (other than depreciation) at $35,000 annually, and incremental administration and selling expenses relating to the blenders at $37,000 annually. To build the food blender the company must invest $250,000 in moulds, patterns and special equipment. Since the company expects to change the design of the blender every four years, this equipment will have a four-year service life with $10,000 salvage value. Depreciation will be calculated on a straight-line basis. (Note Initial Investment is made at the start of the year when the project commences). Ignore taxation for the purposes of this question. REQUIRED:

(a) Provide a projected accrual income statement calculating average per annum accounting profit for Kitchen Electrical based on the above information.

(b) Produce a table showing projected cash inflows / outflows and net cash flows each year over the project life.

(c) Calculate (show full workings to your answer) and interpret the meaning of:

(i) accounting rate of return on the project

(ii) payback on the project

(iii) net present value assuming a 18% discount rate on the project.

(iv) internal rate of return on the project

(d) The company is also considering an alternate superior blender Project B - to manufacture and sell. The upfront capital cost to manufacture this blender is costlier at $500,000 initially. The projected life is again 4 years generating a NPV of $145,600 and an Internal Rate of Return of 32.36 percent based on a yearly year end cash inflow of $240,000. Required:

(i) Determine which alternative proposal the company should choose based on increasing the net wealth of the business. (Full justify your answer (limit 40 words))

(ii) Now assume the company has the opportunity of replicating each proposal several times (projects are no longer mutually exclusive) but also has an imposed capital constraint, limiting initial investment to $1,000,000. Does your recommendation change - Fully justifying your answer comparing total returns when utilising the $1 million in capital (limit 80 words). (HINT: The company can do multiple projects - A and/or B up to an initial capital spend of 1,000,000)