Question $2,(30$ marks$)$

ABC company is considering the introduction Product A which is a new product in the

market. The introduction would require an investment of $N$$$100000$ in new manufacturing

equipment. The product would have a selling price of $N$$$60$ per unit and a contribution

margin of $42\%.$ No changes in either selling prices or variable cost prices are anticipated

over the five$-$year life of the investment.

Market research indicates the following probabilities relating to demand for the new product

in the first year:

Sales units Probability

$700010\%$

$800030\%$

$900045\%$

$1000015\%$

Sales volume would be expected to grow at a rate of $10\%$ per annum.

Incremental fixed costs resulting from the investment are estimated at N$$225000$ per annum

increasing to N$$250000$ per annum in years $4$ and $5.$ The investment would be expected to

have a terminal value of $N$$$5000$ at the end of its five$-$year life. The cost of capital is $10\%$

per annum.

Discount factors at $10\%$ are: