The E$-$scooter Ltd Company is an established and growing manufacturer of electric

mobility scooters. The company currently produces and sells $70,000$ scooters annually

and enjoys a constant year on year increase in sales volume of $6\%$ and has cost of

capital $12\%.$ However, it has recently suffered from production quality problems that

had increased the cost of product failure.

The E$-$scooter Ltd has recently paid $100,000$ to the external consult $$E$-$move

Consulting Ltd$$ for an engineering review of the company operations. The report of Emove

Consulting Ltd has found that the cost of product failure is currently as in the

following table and if nothing change, this cost is going to increase in line with the

increase of the production and sales of $6\%$ over the $5$ years of the investment:

Probability Cost of Product Failure $()$

$40\%2,000,000$

$25\%2,500,000$

$20\%1,500,000$

$15\%1,200,000$

E$-$scooter Ltd can change its current supplier of the electric motors. The new motors

will be more efficient and with some modifications in the production line will save

assembly costs. This second option requires an additional immediate investment of

$5,000,000,$ which will have useful economic life $5$ years and zero residual value. It will

also result to an increase of fixed production costs by $2,000,000$ including

depreciation.

This investment will save $30$ per scooter in assembly costs, which will obviously

increase in line with the production and sales volume over the $5$ years of the

investment.

It is given that there are no taxes and inflation and only one of the two options can be undertaken.

Estimate the Net Present Value and the Internal Rate of Return and

show your calculations.