Question 2 Bonsall Plc are a manufacturing company who produce components for high performance motorcycles. The product research team have been working on a new lightweight handlebar which they are now proposing to launch. The production and sales teams have supplied the following data to you- Bonsalls Finance Manager. (see attached table)

A new machine will be required to produce the handlebar at a cost of 150,000 payable immediately. After 5 years the sales team forecast that the product will become obsolete and hence the handlebar will be withdrawn from sale. At this point the original machine will be sold for an expected scrap value of 5,000 Bonsall use a discount rate of 10% to appraise new investments. For an investment to be authorized it must meet or exceed the following targets: 1. NPV- positive at 10% discount rate 2. IRR- 15% 3. Undiscounted Payback- 3yrs or less Required Using the information above for the new project calculate: 1) The undiscounted payback 2) The Net Present Value and 3) The Internal Rate of Return Considering your answers state whether the project is acceptable.

Year Sales f's Scrap proceeds 's Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 250,000 305,000 375,000 475,000 400,000 0 Fixed costs 's 120,000 125,000 130,000 135,000 140,000 0 Variable costs f's 125,000 152,500 187,500 237,500 200,000 0 5000