Question 14 Abbey Ltd is a leading manufacturer of domestic solar panels. The company's directors are...

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Question 14 Abbey Ltd is a leading manufacturer of domestic solar panels. The company's directors are currently exploring the possibility of expanding its operations through a new initiative named 'Best Solar'. To facilitate this project, the company will need to invest 1,000,000 in acquiring new equipment. In addition, they will need to invest 100,000 in working capital at the start of the project, but this will be released at the end of the project. The company has already spent 12,500 on market research. Projected sales and production figures are as follows: Year 1 Year 2 Year 3 Year 4 Sales and Production (units) 100,000 110,000 150,000 150,000 Additional information: Selling price per unit is 10 per unit Direct material and incremental fixed costs per unit are 4 and 2 respectively. Distribution expenses will be 120,000 per year for years 1 - 3, this will increase to 150,000 in Year 4 An after-tax discount rate of 10% is used when appraising new capital investments. The target payback period for Abbey is 4 years. Required: a) Calculate the Net Present Value (NPV) of the proposed investment and comment on your findings. b) Calculate the Payback Period for the project. Question 14 Abbey Ltd is a leading manufacturer of domestic solar panels. The company's directors are currently exploring the possibility of expanding its operations through a new initiative named 'Best Solar'. To facilitate this project, the company will need to invest 1,000,000 in acquiring new equipment. In addition, they will need to invest 100,000 in working capital at the start of the project, but this will be released at the end of the project. The company has already spent 12,500 on market research. Projected sales and production figures are as follows: Year 1 Year 2 Year 3 Year 4 Sales and Production (units) 100,000 110,000 150,000 150,000 Additional information: Selling price per unit is 10 per unit Direct material and incremental fixed costs per unit are 4 and 2 respectively. Distribution expenses will be 120,000 per year for years 1 - 3, this will increase to 150,000 in Year 4 An after-tax discount rate of 10% is used when appraising new capital investments. The target payback period for Abbey is 4 years. Required: a) Calculate the Net Present Value (NPV) of the proposed investment and comment on your findings. b) Calculate the Payback Period for the project.