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Panjy isconsidering a new project to produce a revolutionary surveillance device. Theinitial capital costs of £300,000 will be paid immediately.The projectis expected to last five years. The sales director estimates that revenue inyear one is expected to be £200,000 with a growth rate of ten percent per year.The gross profit is expected to be sixty percent for the duration of theproject.Thecompany’s policy is to use the straight-line depreciation method for the newproject’s asset over five years. At the end of this period, the asset will bescrapped. Assume that the disposal will not incur any cost nor generate anyincome.Fixedoverheads including depreciation for year one is forecast at £110,000. Fixedoverheads excluding depreciation are to be increased at a compound rate of fivepercent per year. Capital allowances are to be taken at 25% of the net bookvalue at the start of the year.Themarginal tax rate is twenty percent. Taxes are considered one year in arrears.The cost of capital for the company’s existing projects is ten percent, whichthe sales director suggests to adopt in assessing the new project.Required:a) Calculate the taxable profits for years one to five.b) Calculate the expected net cash flows for years zero to six.c) Calculate the Net Present Value of the project and advise if the firmshould proceed with the new investment.d) Critically comment if the CAPM has any bearing on the salesdirector’s suggestion.Note: Toshow all workings with accompanying explanations.Word count requirement:800

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