The directors of Hasbro Inc are considering a planned investment project costing $$25m,$

payable at the start of the first year of operation. The following information relates to the

investment project:

This information needs adjusting to take account of selling price inflation of $4\%$ per year and

variable cost inflation of $3\%$ per year. The fixed costs, which are incremental and related to

the investment project, are in nominal terms. The year $4$ sales volume is expected to continue

for the foreseeable future.

Hasbro Inc pays corporation tax of $30\%$ one year in arrears. The company can claim tax$-$

allowable depreciation on a $25\%$ reducing balance basis. The views of the directors of Hasbro

Inc are that all investment projects must be evaluated over four years of operations, with an

assumed terminal value at the end of the fourth year of $5\%$ of the initial investment cost. Both

net present value and discounted payback must be used, with a maximum discounted

payback period of two years. The real after$-$tax cost of capital of Hasbro Inc is $7\%$ and its

nominal after$-$tax cost of capital is $12\%.$

Required:

A$.$ Calculate the net present value and the discounted payback period of the planned

investment project using the nominal after$-$tax cost of capital.

$(11$ marks$)$

B$.$ Discuss the financial acceptability of the investment project.

C$.$ Critically discuss the views of the directors on Hasbro Inc's investment appraisal.