Singer Ltd is evaluating an investment proposal to manufacture perfumes. The product has done well in test marketing trials conducted by the companys R&D department. The following information is available:

Initial investment Kes 2,000,000.00

Selling price (current price terms) .. Kes 20.00

Expected selling price inflation .. Kes 3% per year

Variable operating costs . Kes 8.00

Fixed operating costs (current price terms) Kes 170,000.00 per year

Expected operating cost inflation ... Kes 4% per year

Year	2012	2013	2014	2015
Demand forecast	60,000	70,000	120,000	45,000

It is expected that all units of the perfume produced will be sold. No machinery scrap value is expected at the end of 4 years. For investment appraisal Singer Ltd uses a nominal discount rate of 10% per year.

(i) What is the Net Present value of the project? . (11 Points)

(ii) Find the IRR........................................................................................ (3 Points)

(iii) What assumptions did you make and why? .. (3 Points)