Q 2(b) A bank loan requires you to pay $70,000 at the end of each of the next eight years. The interest rate is 8%. a. What is the present value of these payments? [3 marks] b. Calculate for each year the loan balance that remaining outstanding, the interest payment on the loan and the reduction in the loan balance. [7 Marks] Glen plc is considering the introduction of a new product that has evolved from work undertaken by the company's R&D department costing 700,000. The manufacture of the product will require an investment of 6 million in a new plant and machinery The company's market research suggests that the company should be able to sell 20,000 units per annum at 250 per unit. The variable costs of production would be 90 per unit and there would also be fixed costs of 250,000 per annum to take into account. The manufacture of the product will be charged 100,000 per annum by the company's management accounting system for the space utilised by the company's production unit. The company has considerable free space available for which it has no alternative use. The expenditure on plant and machinery would be depreciated for tax purposes on a straight-line basis over an anticipated product life of four years. At the end of the four years, it is anticipated that the plant could be sold for 0.9 million. The project would require holding stocks of the final product that will cost 240,000 to produce. The investment in working capital will only involve stocks as the investment in receivables will be offset by the credit provided by the company's suppliers. If the tax rate is 30 per cent and the required rate of return is 14 per cent evaluate whether this a profitable investment using the NPV method. State the critical assumptions you have made in your analysis