"Muscat Ovens' is considering diversifying its operations and purchasing some equipment to make refrigerators. The new equipment capital cost is estimated to be 2,700,000. If its purchase is approved now, the equipment can be bought and production can commence by the end of this year. 300,000 has already been spent on research and development. Estimates of revenues and costs arising from the operation of the new equipment are: Selling Price Unit Sales Volume Variable Cost Unit Fixed Costs Year 1 Year 2 Year 3 Year 4 Year 5 250 250 230 230 220 5,000 6,000 7,000 8,000 10,000 75 75 65 60 60 375,000 375,000 375,000 375,000 375,000 If the equipment is acquired, sales of ovens will be lost resulting in a loss of contribution of 150,000 a year over the life of the equipment Included in the fixed costs is depreciation of 75,000 a year on the new equipment and an allocation of fixed overheads of 25,000. A separate study has indicated that if the new equipment were bought, additional fixed overheads, excluding depreciation would be 80,000. (c) Calculate the Net Present Value (NPV) for the project over a five year period and conclude on whether Muscat Ovens should invest in the new product line (discount factors at 8% are supplied in the table below). Discount Factors Year 1 0.9259 Year 2 0.8573 Year 3 0.7938 Year 4 0.7350 Year 5 0.6806 "Muscat Ovens' is considering diversifying its operations and purchasing some equipment to make refrigerators. The new equipment capital cost is estimated to be 2,700,000. If its purchase is approved now, the equipment can be bought and production can commence by the end of this year. 300,000 has already been spent on research and development. Estimates of revenues and costs arising from the operation of the new equipment are: Selling Price Unit Sales Volume Variable Cost Unit Fixed Costs Year 1 Year 2 Year 3 Year 4 Year 5 250 250 230 230 220 5,000 6,000 7,000 8,000 10,000 75 75 65 60 60 375,000 375,000 375,000 375,000 375,000 If the equipment is acquired, sales of ovens will be lost resulting in a loss of contribution of 150,000 a year over the life of the equipment Included in the fixed costs is depreciation of 75,000 a year on the new equipment and an allocation of fixed overheads of 25,000. A separate study has indicated that if the new equipment were bought, additional fixed overheads, excluding depreciation would be 80,000. (c) Calculate the Net Present Value (NPV) for the project over a five year period and conclude on whether Muscat Ovens should invest in the new product line (discount factors at 8% are supplied in the table below). Discount Factors Year 1 0.9259 Year 2 0.8573 Year 3 0.7938 Year 4 0.7350 Year 5 0.6806