The Hero Bike Company is planning to introduce a new range of mountain bikes in addition to its existing range. The company requires an annual rate of return of 15% on any new project. The managing director has asked you to appraise the financial effects of introducing the new range.

The following information relates to this project.

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Development costs120,00048,000----Sales revenue--155,000145,000167,000185,000Variable costs--75,00060,00079,00092,00014% discount factor1.0000.8770.7690.6750.5920.519

Required:

1. Calculate the net cash flows for each year
2. Calculate for the new project (Must clearly show all relevant calculations for full marks)
3. The payback periods
4. The net present value
5. Use the data from part (a) to prepare a report to the managing director on the new farm equipment project. Your report should:
6. Identify two additional items of information relevant to appraising this project
7. Make a recommendation to accept or reject the project based on its net present value,
8. List three benefits of Payback Period

Answer: