Q.5 [14 marks] (a) A company is considering a 3-year project that will involve the following investment, estimated revenue and estimated costs: Investment: an initial capital investment of 3.4M at the start of the project Revenue: an expected sales revenue of 0.8M in Year 1, increasing to 3M in years 2 and 3. Costs: total operating costs per year of 0.6M in years 1-3. The capital depreciation rate is 15% and the tax rate is 20%. Draw up a cashflow table for the project, briefly summarising your methods. (You do not need to consider what happens to the remaining asset value at the end of the project.) Thus show that the payback time of the project is between 2 and 3 years, and the DCFROR (sometimes also called the 'IRR') is approximately 10%. (10 marks] (b) In economic analyses such as that above, staff salaries are usually counted as part of the operating costs. Discuss briefly whether you believe salaries should be considered costs or investments. [4 marks]