Projectis a strategically important project that has been decided by the DANNY Co Board to continue to be competitive irrespective of financial acceptability. The project has a four-year lifetime. Future cash flow information for this project is as follows:

Year1234

Sales volume (units) 12,000 13,000 10,000 10,000

Selling price ($/unit) 450 475 500 570

Variable cost ($/unit) 260 280 295 320

Fixed costs ($'000) 750 750 750 750

Before taking the selling price inflation of 5.0% annually, variable cost inflation of 6.0% annually and fixed cost inflation into account, these forecasts are 3.5% annually. Fixed costs are incremental fixed costs linked to Project . At the end of four years, machinery for scrap with a value of $400,000 will be sold. Initial investment costs for Projecthave a tax depreciation allowable on a 25% balance basis, and DANNY Co pays corporate tax of 28% a year, in arrears for one year. At the end of the fourth year of operation a balancing charge or allowance is available. DANNY Co has a nominal capital cost of 13 percent per year after taxation. Project's initial investment is $5,000,000.

Required (a) Calculate Project's nominal post-tax net present value and make comments on this project's financial acceptability. (b) Discuss why the DANNY Co board may decide to restrict the funding available for project funding.