Company ABC is evaluating the following project, with an initial outlay of $ 50,000 and initial revenues of $ 90,000, and it expects to make a further investment of $ 30,000 for maintenance purposes at the end of year 2. Further information is found below:

Assumption Initial Investment 50,000 at year zero Terminal Value 0 Asset Life 5 years Depreciation 10,000 per year Additional Investment 30,000 at end of year 2 Initial Revenues 90,000 at end of year 1 Cost of Good Sold 60% of Revenues Revenue Growth 3% per year Risk free rate 5% Equity Premium 8% Beta 1.2 Tax rate 34% 1. Compute the risk adjusted cost of capital using the CAPM approach, assuming the company is all equity financed. 2. Evaluate the project using the NPV, IRR and Payback method, using two years as a payback period. Which method would you use to evaluate the project? Why? Briefly describe the flaws and advantages of each method.