Bruce Industries is considering introducing a new product. Bruce believes it can sell 32000 units of this product per year for 10 years at a price of \(\$ 18\) per unit. Bruce estimates that the cost of producing the product would be \(\$ 6\) per unit. Additional production costs of \(\$ 150000\) would be required during the first year, however, while the production department became familiar with the techniques required to produce the new product. Cash payments for advertising this product are expected to be \(\$ 100000\) per year. Variable selling costs are expected to be about \(\$ 4\) per unit sold.

Bruce Industries has already spent \(\$ 600000\) on research and development of this product. If the new product is introduced, an additional \(\$ 440000\) would have to be invested immediately to obtain the additional plant and equipment necessary for production. This additional plant and equipment would have a residual value of \(\$ 200000\) after 10 years. Bruce's required rate of return is 20 per cent. Required:

a Prepare a schedule of the relevant annual net cash flows for this capital expenditure proposal to introduce this new product.

b Calculate the net present value of the proposal.

c Discuss whether Bruce should accept this proposal.