Question 3 Wilson plc is a renowned manufacturer that specializes in manufacturing advanced tennis rackets. The company is currently looking to expand its manufacturing capabilities and it is exploring new markets with cheaper labour. The company is considering investing in a new manufacturing plant in Egypt and develop a new array of products. This project needs an immediate cash investment of 4,000,000. There is no residual value at the end of the project. The net cash flows for the five years of the project are expected to be: (4,000,000) Initial Investment Net Cash flows forecasts: Year 1 Year 2 Year 3 Year 4 Year 5 600,000 800,000 1,400,000 1,500,000 700,000 Required: a) Calculate the payback period for the above project and state whether the business should invest in the new plant in Egypt if it is the company's policy not to take on a project with a payback period longer than 3 years. (4 marks) b) Calculate the Net Present Value (NPV) assuming that your company's cost of capital is 10%. Suggest if the project is acceptable and explain the reason(s) behind your recommendation. (Present Value tables are provided at the end of this examination paper). (6 marks) (Total: 10 marks) The following figures relate to the year ended 31 August 2019: Division F Division N '000 '000 14,500 8,700 Sales Controllable profit 2,645 Less apportionment of Head Office costs (1,265) Net profit 1,380 1,970 (684) 1,286 Non-current assets Inventory, cash and trade receivables Trade payables 9,760 2,480 2,960 14,980 3,260 1,400 Required: a) For each division, for the year ended 31 August 2019, calculate the appropriate return on investment (ROI) using the formula stated in terms of margin and turnover. (6 marks) b) Assume that each division is presented with an investment opportunity that would yield a 20% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or else reject this investment opportunity? Why? (4 marks)