1. A manufacturing company wants to expand its product line. There are two investment projects which could help the company achieve its aim. The data for each investment project is shown below. 2 3 4 5 Data for the investment projects A and B Project A Year 0 1 Initial investment outlay 125,000 Cash inflows 75,000 Personnel expenses 22,500 Material expenses 15,000 Maintenance expenses 2,500 Other cash outflows 3,750 Liquidation value 80,000 22,500 20,000 2,500 3,750 95,000 22,500 22,500 5,000 3,750 95,000 22,500 22,500 8,750 5,000 86,250 22,500 22,500 10,000 5,625 12,500 2 3 4 5 Year Initial investment outlay Cash inflows Personnel expenses Material expenses Maintenance expenses Other cash outflows Liquidation value Project B 0 1 225,000 155,000 27,500 25,000 8,750 6,250 140,000 27,500 22,500 11,250 3,750 108,750 27,500 22,500 17,500 3,750 93,750 27,500 22,500 15,000 3,750 125,000 27,500 24,000 14,000 4,000 15,000 The Discount Rate is 8% a. Assess the relative profitability of the two options using the following methods: (i) The Annuity Method (ii) The Net Present Value Method (iii) The Internal Rate of Return Method (17 marks) b. Explain why depreciation and interest should not be included as costs in a discounted cash flow (DCF) analysis of a project. (8 marks)