Question 3 Google is one of the largest company in the world and is evaluating an investment proposal to manufacture a new virtual renlity product called GVR. This prototype was well received in an IT conference that was recently held in the Silicon Valley. GVR will be incorporated to the Google mobile system which is good for gaming. The following information relating to this investment proposal has now been prepared: Initial investment $2 million Selling price (current price terms) $20 per unit Expected selling price inflation 3% per year Variable operating costs (current price terms) $8 per unit Fixed operating costs (current price terms) $170,000 per year Expected operating cost inflation 4% per year The finance section has prepared the following demand forecast as a result of its successful debut at the IT conference. The forecast reflects expected technological change and its cffect on the anticipated life-cycle of GVR. Year Demand (units) 60,000 70,000 120,000 45,000 It is expected that all units of GVR produced will be sold, in line with the company's policy of keeping no inventory of finished goods. No terminal value or machinery sorap value is expected at the end of four years, when the production of GVR is planned to end. For investment appraisal purposes, Google has a nominal cost of capital of 10% Tenore taxation. Required: (a) Calculate the following values for the investment proposal: (1) Net present value (6 marks) (i) Intemal rate of return (6 marks) (11) Payback period (6 marks) (b) Briefly discuss your findings in each section of (a) above and advise wacther the investment proposal is financially acceptable. (7 marks)