Question

Project X is being considered for implementation. Its investment cost is estimated to be Tsh $400,000,$ of which Tsh $100,000$ is for buildings, Tsh $150,000$ is for machinery and Tsh $150,000$ is for vehicles. The project would operate for $12$ years and vehicles would have to be replaced in year $8.$

The project would produce $1000$ units of output in year $1,2000$ units in each of year $2$ to $11$ and $1500$ units in year $12.$ All units produced in each year will be sold for Tsh $230$ per unit.

The operating costs are Tsh$100$ for materials and Tsh $40$ for labour per unit respectively and annual wage bill is estimated at Tsh $30,000$ per annum.

Required

Draw an annual statement of project costs and benefits in constant market prices.

Compute NPV for the proposed project above using discount rate of $12\%.$ Comment on your answer