International Food Genetics As the newly appointed financial manager of International Food Genetics (IFG), you are about to analyse a proposal for the marketing and distribution of a range of genetically engineered vegetable seeds, which have been developed by a biotechnology firm. This firm will supply seeds and permit IFG to market and distribute them under a licence. Market research, costing £100,000, has already been carried out by IFG to establish the likely demand for genetically engineered vegetable seeds. After five years IFG will stop selling these seeds as the company anticipates that this product will be superseded by newer biotechnological developments.  
The annual payment to the biotechnology firm will be £1m for the licence; this will be payable at the end of each accounting year. £500,000 will be initially needed to buy a fleet of vehicles for distribution. These vehicles will be sold at the end of the fifth year for £200,000. The project will require packaging and administrative facilities. IFG is a large firm and has a suitable factory with offices, currently lying unused. The Head Office has stated that they will let this space to your project at a reduced rent of £200,000 per annum payable at the end of each accounting year. However, the open market rental value is £1m per annum.  
The project would start in 2008 and would not be subject to any taxation because of its special status as a growth industry. A relatively junior and inexperienced accountant has prepared forecast of profit and loss accounts for the project as shown in the following exhibit. Exhibit Year 2008 2009 2010 2011 2012   £’000 £’000 £’000 £’000 £’000 Sales 5000 6000 6000 6000 6000 Costs         Market research 100       Raw material (seeds) 2000 2400 2400 2400 2400   Licence 1000 1000 1000 1000 1000   Vehicle fleet depreciation 100 100 100 100 100   Direct wages 500 500 500 500 500   Rent 200 200 200 200 200   Overheads 500 500 500 500 500   Variable transport costs 500 500...