SMB plc is considering launching a new product. The product, CartonZ, is a an innovative games console on which one will be able to play both Playstation and XBox games. To produce CartonZ SMB will have to build a new factory. It has engaged consultants who have already found a suitable factory for the project in near Killmallock in Co. Limerick. These consultants have already been paid 10,000 for their work. The factory will be leased on a 5-year long lease for 20,000 per annum payable in advance. The machinery required to manufacture CartonZ will cost 500,000. Government grants of 20% are available to support the purchase of the machinery. These grants will be payable 12 months after the machinery is paid for. The factory will be largely automated, but SMB will have to recruit 10 production operatives, and each operative will be paid 25,000 per annum in wages. A production manager will also have to be recruited and he will be paid 50,000 per annum. Fixed costs of production are estimated to be in the order of 100,000 per annum. The selling price of an CartonZ will be competitive at about 250. Variable production costs will be 175 per unit. SMB will have an immediate incremental working capital requirement of 200,000 should it decide to go ahead and manufacture CartonZ. It is projected that the sales of CartonZ for the first year will be 25,000. Thereafter sales will be 30,000 units per annum. After year 5 it is expected that Sony and Microsoft will have developed their respective consoles so that their new games will no longer be able to be played on CartonZ. Accordingly, the project will be wound down and the working capital recovered. Five of the production operatives will have to be made redundant but five will be kept on working in other areas of the SMB business. The production manager will also be made redundant. It is estimated that redundancy costs will amount to the annual salaries of each employee who is made redundant. The machinery will be sold for an estimated 20,000. SMB estimates that cost of capital for this project to be 8%. Except where explicitly stated assumed that all cash flows occur at the end of the year. Required: Advise SMB as to whether it should undertake the above project. List two assumptions that you have made and explain your recommendation