Bright Lighting Ltd is considering a new range of product based on a specific type

Bright Lighting Ltd is considering a new range of product based on a specific type of intelligent stage lighting after extensive market research costing $60,000, which was paid yesterday. Bright expects that this range will increase the firm’s revenues by $1,565,000 in the first year of operations. Thereafter, revenues will only increase by 6% p.a. The additional material will cost $850,000 p.a., additional labour cost is expected to be $350,000 p.a. and other miscellaneous costs are estimated to be $52,000 p.a. After the first year, Bright expect these costs will increase by 10% p.a. each year. [Assume that all revenues are received and that all costs are paid at the end of each year.] The initial outlay of $2,125,000 will be depreciated on a straight-line basis to zero salvage value over the 8-year productive life of the project. It is estimated the various components of equipment can be sold for $100,000 at the completion of the project. The firm requires a 12.5% p.a. required rate of return and the tax rate is 30%. Tax is paid in the year in which net earnings are received.

1. Calculate the incremental cash flows for each year (Y₀ to Y₈ inclusive). (10 marks) PLZ consider Y0.
2. Calculate the net present value, that is, the net benefit or net loss in present value terms of the project. (4 marks)