Plese provide step by spet solution. Kicvarom Plc is considering the manufacture of a new product. The company has existing buildings that could be sold to buyers for $120,000.$ The balance sheet records the building as having a value of $60,000.$ The new product, which has a life of $5$ years, will require installation of sophisticated machinery. This will cost $200,000.$ At the end of its life, the machine can be sold for $10,000.$ Depreciation should be charged on the machine at $25$ per cent using the reducing balance method.

Demand for the new product is expected to be $4,000$ units in year $1$ and $7,000$ units in each of years $2$ to $5.$ The sale price will be $110$ per unit; direct labour, direct material and variable overheads will cost $60$ per unit and additional fixed expenses of $50,000$ per annum will be incurred. An investment in working capital is required in year $0$ of $75,000.$ This will be increased to $100,000$ in year $1.$ No further increases are required over the life of the project. Assume that the company pays corporation tax at $24$ per cent on its taxable profit a year after the end of the year and requires a rate of return of $10$ per cent per annum after tax on this type of project.

Required:

Should the company undertake the investment? Use the following four investment appraisal methods and state all your assumptions.

a$)$ NPV $(20$ marks$)$

b$)$ Payback period $($assume the benchmark is $2$ years$)(5$ marks$)$

c$)$ Discounted payback period $(5$ marks$)$

d$)$ Profitability index $(10$ marks$)$