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Xpress-Oh Plc makes high-end coffee machines using proprietary new technology which significantly speeds up the brewing process. The machines retail at USD1,999 per unit. Business

Xpress-Oh Plc makes high-end coffee machines using proprietary new technology which significantly speeds up the brewing process. The machines retail at USD1,999 per unit. Business is good and shareholders are feeling confident in the future and keen to invest in growth. The Board of Directors are reviewing two proposals to extend the existing flagship factory in the UK with the view to making it a main export hub. The company expects to grow at a rate of 7% annually and all its investments require a minimum return of 8%. It will only be able to proceed with one of the two projects. image text in transcribed

Question 3 Information Xpress-Oh Plc makes high-end coffee machines using proprietary new technology which significantly speeds up the brewing process. The machines retail at USD1,999 per unit. Business is good and shareholders are feeling confident in the future and keen to invest in growth. The Board of Directors are reviewing two proposals to extend the existing flagship factory in the UK with the view to making it a main export hub. The company expects to grow at a rate of 7% annually and all its investments require a minimum return of 8%. It will only be able to proceed with one of the two projects. The projected cash flows of the two projects are outlined below. You are a highly qualified investment appraisal consultant hired to evaluate the projects and advise the firm how to proceed. Year Cash flow Project XO1 - 500,500 Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow Project XO2 - 630,600 250,000 210,000 120,000 140,000 380,000 100,000 70,000 - 243,000 190,000 160,000 150,000 - 240,300 Year 5 Year 6 a) Which, if any, of the two projects should Xpress-Oh undertake? Explain your decision and choice of investment appraisal method and include your calculations. [7 marks]

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