Vamoose plc is a company based in the Teeside which manufactures components for the motorised  scooter and bicycle industry. Vamoose’s Research and Development unit has recently developed  an innovative new product for which there is considerable market demand. The production of this  new product represents a major shift in Vamoose’s strategic direction as a company. Subsequently,  the company is now planning to acquire a piece of equipment to manufacture the new product. The  equipment will cost £6,600,000 and is expected to last for 5 years with an estimated scrap value of  £2,300,000. Management expects to produce 160,000 units per annum (p.a.) of the new product,  which will be sold for £68 per unit in the first year. Production costs per unit (at current prices) are  as follows:  Materials: £28.50  Labour: £24.40  Materials are expected to inflate at 8.5% p.a. and labour is expected to inflate at 6.5% p.a. Fixed  overheads of the company currently amount to £1,370,000. These are not expected to increase as  a direct result of manufacturing the new product. The company expects to be able to increase the  selling price of the product by 9.5% p.a. An additional £760,000 of working capital will be required  at the start of the project. Other data are as follows:  Capital allowances: 20% reducing balance.  Tax: 20%, payable immediately  Cost of capital: 18%  Required: Strategic investment decision making involves the process of identifying, evaluating, and  selecting projects that are likely to impact a company's competitive advantage. Explain briefly  four possible approaches to strategic decision making.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Vamoose plc is a company based in the Teeside which manufactures components for the motorised 
scooter and bicycle industry. Vamoose’s Research and Development unit has recently developed 
an innovative new product for which there is considerable market demand. The production of this 
new product represents a major shift in Vamoose’s strategic direction as a company. Subsequently, 
the company is now planning to acquire a piece of equipment to manufacture the new product. The 
equipment will cost £6,600,000 and is expected to last for 5 years with an estimated scrap value of 
£2,300,000. Management expects to produce 160,000 units per annum (p.a.) of the new product, 
which will be sold for £68 per unit in the first year. Production costs per unit (at current prices) are 
as follows: 
Materials: £28.50 
Labour: £24.40 
Materials are expected to inflate at 8.5% p.a. and labour is expected to inflate at 6.5% p.a. Fixed 
overheads of the company currently amount to £1,370,000. These are not expected to increase as 
a direct result of manufacturing the new product. The company expects to be able to increase the 
selling price of the product by 9.5% p.a. An additional £760,000 of working capital will be required 
at the start of the project. Other data are as follows: 
Capital allowances: 20% reducing balance. 
Tax: 20%, payable immediately 
Cost of capital: 18% 
Required:

Strategic investment decision making involves the process of identifying, evaluating, and 
selecting projects that are likely to impact a company's competitive advantage. Explain briefly 
four possible approaches to strategic decision making. 

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