The accountants at Tamcar plc, manufacturers of sugar-coated candies,

are analysing the availability of a new division, Sweet Heaven. They

estimate that this project will have a life of four years before the market

disappears due to the imposition of an EU ban on sugar-coated candy.

The estimated sales, made on three months credit, are as follows:

Year Sales() Costs()

20X1 1.5m 0.75m

20X2 2.0m 1.00m

20X3 2.5m 1.25m

20X4 3.0m 1.50m

There are no bad debts.

Costs of production are paid for on the last day of the year.

There are no creditors. An investment in plant of 1m is required.

The plant will have zero scrap value at the end of this project.

The accountants depreciate the buildings and machinery at 25% per

annum on straight-line basis.

A cash float of 0.5m will be required at the start and stocks will increase

by 0.3m. These are both recoverable at the end of the project life.

A 1m invoice for last years scientific study of Sweet Heaven

technology has yet to be paid.

The head office allocates a proportion of central expenses to all divisions

and projects. The share to be borne by Sweet Heaven is 500,000 per

annum. The head office costs are unaffected by the new project.

The accountants have produced the following projected profit and loss

accounts:

Year 20X1m 20X2m 20X3m 20X4m

Sales 1.50 2.00 2.50 3.00

Costs of production 0.75 1.00 1.25 1.50

Depreciation 0.25 0.25 0.25 0.25

Scientific survey 0.25 0.25 0.25 0.25

Head office 0.50 0.50 0.50 0.50

Profit/loss -0.25 0.00 0.25 0.50

Required

Calculate the net present value and recommend whether to accept this

project or invest elsewhere.