Bristol Wire plc is operating in a highly competitive pharmaceutical industry. The industry is technologically and innovatively driven and has see increased activity since the Covid 19 vaccine and booster program. The company recently had a portion of its market share reduced due to two of its main competitors having merged and this has resulted in their existing customers switching to the competition due to better pricing. The market is very volatile and Bristols share price has only grown by 6% over the past twelve months which is mainly as a result of continued investment. Bristol Wire plc is considering the addition of a new product to its existing range. Bristol Wire plc has had some difficulty in forecasting the performance of this product. As a result, it hired a firm of market consultants to assist with planning and modelling. The cost of this assignment was agreed at 275,000, payable to the consultants three months after delivery of their final report. The main details of the market consultants report, which has just been presented to the Board of Bristol Wire plc, are as follows: The product is expected to last for four years when production will then cease. Sales in the first year are estimated at 4,200 units. The number of units sold is expected to grow at an annual rate of 10% The initial selling price of the product will be set at 100 per unit. It is expected that the selling price can be increased by 5% from the third year. Machinery costing 400,000 will be required immediately with an expected residual value of 70,000 when the project ends. Bristol Wire plc has a policy of depreciating the cost of machinery in its financial accounts over four years on a straight-line basis. Bristol Wire plc plans to finance the machinery with a bank loan at an annual fixed interest rate of 8%. Working capital of 30,000 will be required from the start of the project. Labour, direct materials and variable overheads are estimated at 20, 25 and 5 respectively per unit in the first year. No change in these costs are expected, except that an agreement has been reached with the trade union whereby labour costs will be increased by 5% from year three onwards. Fixed overheads of 60,000 per annum have been estimated. Forty per cent of this figure relates to existing fixed costs of the organisation, which have been allocated to the project. The remainder relates directly to the new product. Production will be carried out in a vacant building which is owned by Bristol Wire plc. If not used to produce the new product the building could be rented out for 50,000 per annum over the next four years. Corporation Tax is at the rate of 20% and tax liabilities are settled in the year in which they arise. The machinery cost will qualify for capital allowances on a straight-line basis over four years. Bristol Wire plcs after-tax cost of capital is 9% Bristol shareholders have never received a dividend over the past two years. The directors of Bristol Wire plc are considering the possibility in the financial year of issuing a dividend. Required: a) Evaluate if the directors current strategy is working. As part of the evaluation analyse the acceptability of the above project using capital budgeting techniques net present value and payback of the proposal and prepare a report for Bristol Wire plcs directors, outlining your recommendation. Your report should include if this project will impact the growth in the firms share price and qualitive factors, other than the figures above, which you feel are important. b) Dividend Policy matters? Required: Discuss the statement providing critical analysis of the academic models which support or conflict with your position. c) Evaluate two systematic and unsystematic risks for Bristol Wire