Given data:

$-$ Initial investment $($I$)=$ RM$2$ million

$-$ Selling price per unit $($SP$)=$ RM$20$

$-$ Expected selling price inflation $=3\%$ per year

$-$ Variable operating cost per unit $($VC$)=$ RM$8$

$-$ Fixed operating costs $($FC$)=$ RM$170,000$ per year

$-$ Expected operating cost inflation $=4\%$ per year

$-$ Demand forecast:

$-$ Year $1$: $60,000$ units

$-$ Year $2$: $70,000$ units

$-$ Year $3$: $120,000$ units

$-$ Year $4$: $45,000$ units

$-$ Discount rate $($r$)=10\%$ per year

$-$ Target return on capital employed $($ROCE$)=30\%$ per year

Calculate the following values for the investment proposal with clear working:

i$)$ net present value;

ii$)$ internal rate of return;

iii$)$ return on capital employed $($accounting rate of return$)$ based on average investment;

iv$)$ discounted payback period.

MBA Accounting and Finance For Manager