(a) Time 0 1 2 3

(i) $'000' $'000' $'000' $'000'

Revenue(W1) 39,375 58,763 85,085
Variable Cost(W1) 22,046 31,183 41,327
Fixed Cost 3,180 3,483 3,811
Operating Cash Flow 14,150 24,097 39,947
Taxation(26%) 3,679 6,265 10,386
Capital Expenditure 20,000
Tax Allowable Depreciation(W2) 1,300 975 731
Net Cash Flow - 20,000 11,771 18,807 30,292
Discount Factor@12% 1 0.893 0.797 0.712
Present Value - 20,000 10,511 14,989 21,568
NET PRESENT VALUE 33,347

Working 1:
Selling Price 131 143 162
Sales(unit) 300 410 525
Revenue 39,375 58,763 85,085

Variable Cost 73 76 79
Sales(unit) 300 410 525
Variable Cost 22,046 31,183 41,327

Working 2: Accumulated DepTax Allowable Depreciation

0 20,000
1 5,000 1,300
2 3,750 975
3 2,813 731
4 8,438 2,194

(ii) 0 1 2 3
$'000' $'000' $'000' $'000'
Nominal Cash Flow After Tax - 20,000 11,771 18,807 30,292
Deflated at real rate 1 0.964 0.930 0.897
Real Cash Flow - 20,000 11,351 17,488 27,164
Discount Factor@8% 1.000 0.926 0.857 0.794
Present Value - 20,000 10,511 14,988 21,568
NET PRESENT VALUE 33,342

(b)
 4
$'000'
32,089
17,924
3,787
10,378
2,698

2,194
9,873
0.636
6,279

146
220
32,089

81
220
17,924

4
$'000'
9,873
0.865
8,538
0.735
6,275