Ray Summers Company operates at full capacity of 10,000 units per year. The company, however, is still unable to fully meet the demand for its product, estimated at 15,000 units annually. This level of demand is expected to continue for at least another four years. To meet the demand, the firm is considering the purchase of new equipment for GH580,000. This equipment has an estimated useful life of four years; estimated sales (disposal) value of this asset at the end of four years is GH50,000 (pretax). The engineering division estimates that installing, testing, and training for the use of the equipment will cost GH12,000. These costs are to be capitalised as part of the cost of the new equipment. An adjacent vacant warehouse can be leased for the duration of the project for GH10,000 per year, which cost would be included as part of fixed manufacturing overhead. The warehouse needs GH58,000 of renovations to make it suitable for manufacturing. The renovation cost is to be capitalised as part of the cost of the new equipment. The lease terms call for restoring the warehouse to its original condition at the end of the lease. The restoration is estimated to cost GH20,000, a cost that is fully deductible for tax purposes. Current pretax operating profit per unit is as follows: Per unit GH GH GH Sales 200 Variable costs Manufacturing 60 Marketing 20 80 Fixed costs Manufacturing 25 Marketing 15 40 (120) Operating profit before tax 80 The new equipment would not affect the variable costs per unit. All current fixed costs are expected to continue with the same total amount. The per-unit fixed cost includes depreciation expenses of GH5 for manufacturing and GH4 for marketing and administration. Additional fixed manufacturing costs of GH140,000 (excluding depreciation on the new equipment) will be incurred each year if the equipment is purchased. The company must also hire an additional marketing manager to serve new customers. The annual cost for the new marketing manager, support staff, and office expense is estimated at approximately GH100,000. The company expects to be in the 40 per cent tax bracket for each of the next four years. The company requires a minimum after-tax rate of return of 12 per cent on investments and for tax purposes uses straight-line depreciation with a GH50,000 salvage value assumed. Required: a. What is the required net initial investment outlay (year 0)? b. What effect will the acquisition of the new equipment have on total after-tax cash inflows in each of the coming four years? (Assume in each year that sales equal production.) c. Compute the net present value (NPV) of the proposed investment under the assumption that all cash inflows occur at year-end. d. Why is discounted cash flow appraisal technique appropriate for Ray Summers?