Tota Limited manufactures motor vehicle components. It is considering introducing a new product. Tanagna Badree, the production director, has already prepared the following projections for this proposal: 2016 2017 2018 2019 ($000) ($000) ($000) ($000) Sales 8,750 12,250 13,300 14,350 Direct materials 1,340 1,875 2,250 2,625 Direct labour 2,675 3,750 4,500 5,250 Variable overheads 185 250 250 250 Depreciation 2,250 2,250 2,250 2,250 Fixed Overheads 1,012 1,012 1,012 1,012 Total expenses 7,712 9,387 10,512 11,637 Profit before tax 1,038 2,863 2,788 2,713 Corporate tax @ 30% (311) (859) (836) (814) Profit after tax 727 2,004 1,952 1,899 Tanagna Badree has recommended to the board that the project is not worthwhile because the cumulative after tax profit over the four years is less than the capital cost of the project and hence the return on investment seems less than acceptable. As an assistant accountant at the company you have been asked by Anala Largen, the chief accountant, to carry out a full financial appraisal of the proposal. She does not agree with Tanagna Badrees analysis, and provides you with the following information; The manufacturing plant will cost $9 million and is expected to be constructed on lands that the company bought some land three year ago. That land mentioned above was purchased for $2.5 million three years ago in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $3 million. In four years, the after-tax value of the land is expected to be $3.5 million. Working capital of $1,000,000 will be required at the beginning of the project; The additional working capital will be recovered in full as cash at the end of the four-year period; At the end of the four-year period the equipment will be scrapped, with no expected residual value; Tota Limited pays corporation tax at 30 per cent of profits; The companys cost of capital is 17 per cent. Required: (a) Calculate the Net Present Value of the investment in the new product (8 marks) (b) Calculate the payback period on the investment for new product. (4 marks) (c) Calculate the discounted payback period on the investment for new product (4 marks) (d) Recommend whether the project should be accepted or not (with reasons). (3 marks) (e) Give three reasons why your analysis is different from that produced by Tanagna Badree, the production director. (6 marks)