Oil Gas Limited is considering investing in two projects; Project 1 and Project 2. Information relating to both is provided below:

Details	Project 1	Project 2
	$	$
Initial Cost	150000	150000
Cash Flow: Year 1	60000	54000
Year 2	50000	44000
Year 3	45000	39000
Year 4	125000	49000
Year 5	0	104000

Project 1 will be sold for a scrap value of $30 000 at the end of year 4 and Project 2 for a scrap value of $24 000 at the end of year 5.

Oil Gas Limiteds capital structure is made up of 50% debt and 50% ordinary shares. The cost of debt is 10% and cost of equity 23%. The current tax rate is 30%.

A. Calculate the net present value of both projects using WACC and indicate which project should be chosen. (8 marks)

B. Describe FOUR (4) problems associated with discounted cash flow methods of analysis. (8 marks)

C. Elaborate on ONE (1) option valuation capital budgeting technique that could be used. (4 marks)