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please help. thank you QUESTION 2 Polyester division of Quintex Ltd has forecast a net profit before tax of NS3 million per annum for the

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QUESTION 2 Polyester division of Quintex Ltd has forecast a net profit before tax of NS3 million per annum for the next five years, based on net capital employed of NS10 million. Plant replacement over this period is expected to be equal to the figures compare well annual depreciation each year. These with the group's required rate of return of 20% before tax. Polyester's management is currently considering a substantial expansion of its manufacturing capacity to cope with the forecast demands of a new customer * The customer is prepared to offer a five-year contract providing Polyester with annual sales of NS2 million. * In order to meet this contract, a total additional capital outlay of N$2 million is envisaged, being NS1.5 million of new fixed assets plus NS0.5 million of working capital. The plant life is expected to be 5 years with zero scrap value. Operating costs for the contract are estimated to be NS1.35 million per annum, excluding depreciation. This is considered to be a low-risk venture as the contract would be firm manufacturing processes are well Polyester for 5 years and the understood within * The consequences of income tax on the proposal may be ignored. Required Calculate the impact of accepting the contract on Polyester division's: a) Return on investment (ROI) for each of the 5 years b) Residual income (RI), using 20% imputed interest rate, usi , with reasons, for each method whether or not it would be ing average capital employed per annum, and say attractive to Polyester division's management

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