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Q4) The following details are given with respect to a new project. The cost of...

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Q4) The following details are given with respect to a new project. The cost of initial investment is $100,000. The lifetime of the project is five years and straight line depreciation will be used The office rental is estimated as $50,000 a year. Five specialists will be hired at $50,000 each a year to work on the project. The marketing and selling costs were forecasted to be $100,000 a year. The price of the product was estimated to be $100 per unit and it was expected to sell 6000 units in first year of operations. The cost of materials used to produce each unit was $20. The number of units sold is expected to increase 10% a year for the remaining four years, and the revenues and costs are expected to increase at 3% a year, reflecting inflation. Working capital requirement was estimated at 10% of revenues. Working capital investment is assumed to be made at the start of year. The tax rate is 40% and discount rate is 12%. Should the project be accepted? 15 Marks

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