Portfolio 2 Capital Investment Appraisal The following information relates to Smith Ltd. The company has an opportunity to invest in one of two potential and mutually exclusive (but not both) projects. Each project will involve the purchase of a new Plant. The following data relates to the two projects: Net Profit Project Alpha Project Beta Plant A Plant B 2021 35,000 12,000 2022 36,000 16,000 2023 38,000 21,000 2024 29,000 35,000 2025 28,000 46,000 2026 22,000 48,000 188,000 178,000 Additional Information The initial cash investment for both plants will be 78,000. The purchase would take place on January 1, 2021. It is assumed that all other cash flows would be received on 31 December each year. Both plants would have a life of six years. Plant 1 has no residual value and plant 2 has a residual value of 10,000. The company uses a straight-line method of depreciation. The cost of capital is 16%. Task a) Using appropriate investment appraisal techniques, advise senior management on whether they should opt for project Alpha or project Beta. (20 Marks) b) Discuss the limitations of using investment appraisal techniques in long term decision making. (10 Marks)