Tshabalalas company wants to invest in a new product design for their new plant that will be opened in Gauteng. The company expects the estimation of the new product design life to be three years. As an Industrial Engineer working for Tshabalalas company you are asked to advice based on the following information; you expect that a capital of R320 000 will be required to get it into production. You also estimate, based on sales forecasts, that the design will result in an after-tax profit of R200 000 the first year and R260 000 the second year, and a R90 000 loss the third year. Management has asked for a 20 percent return on capital investment.

Would you advice Tshabalalas company to go ahead with the investment to make the new production design? Explain