Question 3 Methusa plc is a renowned manufacturer that specializes in manufacturing advanced tennis rackets. The company is currently looking to expand its manufacturing capabilities and it is exploring new markets with cheaper labour. Following a good trading year, the company has a surplus to invest in its business and Managing Director has come up with two alternatives but mutually exclusive options of investing this capital; a) Invest in a new manufacturing plant in England and develop a new array of products. b) Invest in a plant in France, which already has an advanced manufacturing information system, capable of mass-producing all existing tennis products. The Finance Director has further drafted the following forecasts based upon some introductory research. Project Initial investment cost England 400,000 France 450,000 Expected life 5 years 5 years Net Cash flows forecasts: Year 1 200,000 190,000 Year 2 230,000 210,000 Year 3 160,000 170,000 Year 4 150,000 140,000 Year 5 140,000 130,000 Resale value of project 30,000 50,000 The company estimates its cost of capital is 8%. Required: a) Appraise the two projects using the following methods of investment appraisal: i. Payback period (4 marks) ii. Net present value (8 marks) (Present Value tables are provided at the end of this paper). b) Based upon your calculations from part (a), state, with reasons, which, if any, of the two investment projects the directors of Methusa plc should accept. (3 marks) c) Identify and discuss any other factors that Methusa plc should consider before arriving at a decision. (5 marks) d) Although it is argued that the Payback method has a number of shortcomings, it is still a common method that is used in investment projects appraisal. Discuss. (5 marks) (Total: 25 marks)