Management Information Assignment 2

You have the option to invest £1 million in equipment now to increase capacity to produce additional units.

Equipment has a useful life of five years.

In each of the years, the effect on profits is as follows:

Revenue per Unit £10

Variable Costs of Production per Unit (£6)

Increased Capacity 100,000 Units

Additional Sales Promotion Costs (£50,000)

Additional Distribution Costs (£50,000)

Assuming an interest rate of 10%, state whether the project should go ahead using:

i) Net Present Value;

ii) Internal Rate of Return;

iii) Accounting Rate of Return;

iv) Payback;

showing all relevant calculations and assumptions.

Please ensure that your assignment bears your name and hand it to the Martran Office during week 9 of the course or earlier. Alternatively, please E-mail to: jon@kitto.co.uk . Good Luck!