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	Cash flow
	Project XO1	Project XO2
Year 0	- 500,500	- 630,600
Year 1		250,000
Year 2	140,000	210,000
Year 3	380,000	190,000
Year 4	100,000	160,000
Year 5	70,000	150,000
Year 6	- 243,000	- 240,300

Xpress-Oh is considering issuing another bond of EUR100 million to fund the new manufacturing facilities. However, in view of developing liquidity concerns the company cannot be certain of sufficient investor appetite for the offering. Xpress-Oh has therefore requested that you make an additional investment appraisal calculation, assuming capital rationing. Explain your investment recommendation based on this alternative investment criteria and include your calculations.