1. Mount Elgon Ltd. is considering the launch of a new product Excel, for which an investment of Shs. 6,000,000 in plant and machinery will be required. The production of Excel is expected to last five years after which the plant and machinery would be sold for Shs.1,500,000.

Additional information:

1. Excel would be sold at Sh600 per unit with a variable cost of Sh240 per unit.
2. Fixed production costs (excluding depreciation) would amount to Shs. 600,000 per annum.
3. The company applies the straight line method of depreciation.
4. The cost of capital is 10% per annum.

5. The units of Excel expected to be sold per annum for the next five years are shown below:

YEAR	Unit Expected to be Sold
1	8,000
2	7,000
3	7,000
4	5,000
5	3,000

The corporation tax rate is 30%.6.

Required:

1. Calculate the net present value (NPV) of the project and advise the management on the appropriate course of action.
2. Calculate the internal rate of return (IRR) of the project and advise the management on the appropriate course of action.
3. Outline the main drawbacks of the IRR method of investment appraisal.