Camp plc has produced and marketed sleeping bags for several years. The sleeping bags are much heavier than some of the modern sleeping bags being introduced to the market. The company is concerned about the effect this will have on its sales.

Camp plc are considering investing in new technology that would enable them to produce a much lighter and more compact sleeping bag. The new machine will cost $\$ 250,000$ and is expected to have a life of four years with a scrap value of $\$ 10,000$. In addition, an investment of $\$ 35,000$ in working capital will be required initially, all of which will be recouped in the final year.

The following forecast annual trading account has been prepared for the project:

The company's cost of capital is $10 \%$. Corporation tax is charged at $30 \%$ and is paid in two instalments, with half the tax payable in the year in which it arises, and the balance paid in the following year. Tax depreciation of $25 \%$ on reducing balance is available on capital expenditure.

Required:
Calculate whether Camp plc should invest in the new technology.

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$ Sales Material 200,000 (40,000) Labour (30,000) Variable overheads (10,000) Depreciation (20,000) Annual profit 100,000