Question 2 (25 marks) Good Hope Ltd introduced a new product, NEW AGE, to its range last year. The machine used to mould each item is a bottleneck in the production process meaning that a maximum of 5,100 units per annum can be manufactured. The NEW AGE product has been a huge success in the marketplace and as a result, all items manufactured are sold. The marketing department has prepared the following demand forecast for future years as a result of feedback from customers. Year 2022 7 100 2023 9 100 2024 11 100 2025 4 100 Demand (units The directors are now considering investing in a second machine that will allow the company to satisfy the excess demand. The following information relating to this investment proposal has now been prepared: Initial investment Maximum additional output Current selling price Variable operating costs Fixed operating costs $20.000 5,000 units $50 per unit $28 per unit $15,000 per year If production remained at 5,100 units, the current selling price would be expected to continue throughout the remainder of the life of the product. However, if production is increased, it is expected that the selling price will fail to $45 per unit for all units sold. Again, this will last for the remainder of the life of the product. No terminal value or machinery scrap value is expected at the end of four years, when production of NEW AGE is planned to end. For investment appraisal purposes, Good Page 10 of 11 FACULTY OF COMMERCE, MANAGEMENT AND LAW Hope uses a nominal discount rate of 10% per year and a target return on capital employed of 20% per year. Ignore taxation. Required: (a)Calculate the following values for the investment proposal: (14 marks) (net present value; (ii) internal rate of return; (iii)return on capital employed (accounting rate of return) based on initial investment; and. (iv)discounted payback period (b)Discuss your findings in each section of (b) above and advise whether the investment proposal is financially acceptable. (5 marks) (c)Explain briefly the key steps that should be included in a company's capital budgeting process. (6 marks)