a. Explain the principle of Net Present Value for the appraisal of investment projects and discuss the main uncertainties for its inputs. (20 marks) b. You are the manager of Smiley Homes, a construction company which intends to invest in 2022 in a new project to produce pasteurised orange juice. The project requires a cash outflow of 10 million in 2022 and 2 million in each of the subsequent two years. Moreover, the project is expected to generate a cash inflow of 2 million from 2023 which grows annually at 5% rate perpetually. In the presence of the current energy and input material inflation crisis, markets are revising their risk forecasts and are expected to require superior returns for specific sectors in the economy for an exceptionally long period. As a manager you have available data as presented in the following table: 2022 2023 onwards long-term forecast Risk-Free Rate 1% 3% Beta Coefficient - Health Care 0.94 0.84 Products Sector Beta Coefficient - Household 0.98 1.25 Consumer Sector Beta Coefficient - Food Sector 0.75 1.35 Beta Coefficient - Home 1.69 0.86 Building Sector Market Risk Premium 15% 20% Use the data you judge appropriate to appraise the project. Would you undertake this investment? (60 marks) c. Suppose that the inflationary crisis period will be over much earlier than expected. Which parameters of your model are likely to be modified and how would you expect them to affect the project performance? (20 marks)