QUESTION 2 The Manchester ple has recently planned to produce a material, which is currently bought and Used as the main input for their production. To analyse this project, the company has paid E5, 000 to a market research company to do a survey on the prices of this material in the next 5 years. The following are the expected payments for the material if they continue to buy. In order to produce this material, the company has to purchase a machine and other items, all of which are at a cost of 100,000 and must be paid at the purchase. The net cash outflows i.e. all operating costs forecasted for the production of the material are as follows: The machinery has a life of five years and can be sold for scrap at the end of its life for 20,000. This is not included in the 160,000 for year 5 . The installation requires additional cost of 25,000 in year 1, which is not included in the 120,000 above. The company also needs the attention of the technical manager during the first two years. This person will have to abandon other projects as a result, causing a loss of 45,000 each year. This cost has not been included in the 120,000 and 130,000 for years 1 and 2. The accounting department has also planned to allocate a central overhead of 15,000 per year to this project during the life of it. This cost has not been included in the above figures. The average cost of capital at Manchester pic is 12%. Required: a. Discuss the concept of incremental cash flows in investment appraisal. Please support your answer with relevant and irrelevant cash flows. b. In the above project, please identify the irrelevant costs. (20 marks) (10 marks) c. Using net Present Value (NPV) technique, please discuss if the Manchester plc should pursue the project. Discuss the assumptions that could alter your conclusion. (40 marks)