QUESTION ONE a) A project requires capital expenditure of 1.5 million in new plant and machinery on 31 December 20X3. On completion of its useful economic life of four years, this plant will be disposed for scrap value estimated at 100,000 at 31 December 20X7 prices Capital allowances are 18% per annum ou a reducing balance basis starting in the year of purchase and last for the duration of the project. A balancing charge or allowance will arise on disposal on 31 December 20X1. Prepare a schedule shoving the writing down allowances (WDA) (10 marks) b) Given the following additional information, compute the Net Present Value (NPV) for the best-case and worst-case scenarios, including the WDA Working capital equal to 8% of mual revenue of the year must be available at the start of the year concerned. All working capital will be released on 31 December 20x7 20x5 20x6 20% Real Discount Rate Indation Taxation 17% Corporate tax payments occur at the end of the accounting year to which they relate. All cash flow are deemed to occur at end of relevant year umless otherwise stated Annual revenue and variable costs are not correlated 1) The best-case scenario for the project is 2 million of annual revenues and variable costs of 25% of annual revenue and ammual fixed costs will be 0.35 million (at 31 December 20x3 prices) (marks) ii) The worst-case scenario for the project is 1.2 million of annual revenues and variable costs of 30%of manual revenue ad annual fixed costs will be 0.35 million (at 31 December 20x3 prices) (9 marks) c) Distinguish between uncertainty and risk in the context of investment decision making and describe how you might adjust the calculations made above under conditions of uncertainty to calculations under conditions of risk (6 marks) [TOTAL: 34 MARKS]