Question 3 (25 marks) Marinar Limited plans to sell a single product ("the Clamp") on the market for $20 per unit. The variable cost of production is $8. Annual fixed production cost is $2,500,000. There is a variable operating cost that amounts to 2% of total sales annually. Included in the annual fixed production cost is depreciation of $1,250,000. The Initial Capital investment is $5,600,000 and for depreciation purposes has a scrap value of $600,000. The company expects to recover $800,000 on the sale of the investment at the end of the project Weighted Average Cost of capital is 12% and the applicable tax rate is 25%. Below is the projected sales volume each year: Year 2010 2011 2012 2013 Planned volume 320,000 400,000 410,000 390,000 Required: a. Explain these terms, briefly: i. cost of capital ii. weighted average cost of capital (2 marks) (2 marks) b. Compute the following: i. Net present value ii. Payback Period (17 marks) (3 marks) c. Advise management as to whether the product is feasible or not. (1 mark)