Dyce plc have been producing board games for many years. They are investigating buying a new machine that will significantly reduce the time taken to manufacture each game. The new machinery is expected to cost of £2,000,000 payable in two installments, one immediately and another a year later. The machine has an expected life of 5 years at the end of which it is expected that it can be sold for £250,000. Expected savings are expected to be £600,000 per year in reduced labour costs. The company believes that wages in future years be affected by inflation, with rates of pay rising at 5% per year. Dyce plc pays corporation tax on profits at 20% per year one year in arrears and the new machinery will be eligible for capital allowances at 25% per year on a reducing balance basis. The new machine is expected to be installed on the first day of the new financial year which is about to start. The current weighted average cost of capital for Dyce plc is 15% 

Required

 (a) Calculate the net present value of the project to invest in the new machinery 

(b) Calculate and briefly explain the sensitivity of the project to a change in the value of savings expected. 

(c) Based on your answers to (a) and (b) and any other relevant factors should Dyce plc take on the project?

 (d) Discuss the appropriateness of using the current weighted average cost of capital to appraise this project.