You are a corporate Finance manager at penguins plc, a leading operator of domestic waste recycling and incineration services

New legislation on air quality and emissions control means that the company must invest in a new incineration facilities. Two possible investment options have been identified. Each option has an expected life of ten years. Sufficient funding is available to finance only one of the options.

option A Option B

Initial cost year 0 200,250 210,260

Scrap value year 10 310 425

Forecast net cash inflows

year 1 40,000 60,000

year 2 50,000 45,000

year 3 45,000 50,000

year 4 50,000 50,000

year 5 55,000 50,000

year 6 50,000 40,000

year 7 45,000 40,000

year 8 40,000 35,000

year 9 40,000 30,000

year 10 35,000 30,000

assume that all cash flows occur at the end of the respective year.

Penguins plc has a cos of capital of 16 per cent.

The company's approach to investment appraisal was discussed at a recent meeting of Penguins plc's senior executive team. Sarah Crosby, Chief Executive at Penguins plc, is keen to understand the qualitative factors that might need to be considered in addition to understand the qualitative factors tat might need to be considered in addition to the result of a quantitative investment appraisal. Sarah has commented

Quantitative investment appraisal only tells part of the story we need to consider the qualitative factors that might be relevant to this decision, too

Kris Malkin, Director of Finance at Penguins plc, has highlighted that successful investment appraisal involves a number of practical issues. Kris commented.

Investment appraisal techniques such as payback, accounting rate of return and net present value are useful, but there are several practical points to bear in mind when using these techniques. I would like to know more about these practical points

Required

a) Calculate the net present value of option A and B. Use penguins plc cost of capital as the discount rate.

b) Critically evaluate the net present value technique

c) Advise Penguin plc's senior executive team on the comments made be Crosby and Kris malkin. Your advice should include an explanation of the qualitative factors that will need to be considered before making a decision on in which option the company should invest and any additional information that might aid the investment appraisal process,