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Question 14.st.6: Catalysts plc is planning the installation of a new processi...

Catalysts plc is planning the installation of a new processing plant. It currently has two
alternatives under consideration:

Project Alpha: The capital cost of this plant is £10 million.
Project Beta: This plant would cost £20 million.

Forecast information for each of the alternatives is as follows:

£m Project Alpha Project Beta
Revenue Payments Revenue Payments
Year 1 7.6 4.0 13 5.8
Year 2 10.2 5.2 14.4 6.2
Year 3 12.8 7.8 18.6 9.6
Year 4 13.8 9.4 19.8 10.4
Year 5 16.2 10.4 12.8 11.6

The company’s cost of capital is 8 % per annum, and the relevant discount factors are
shown below:

Year 1 0.926
Year 2 0.857
Year 3 0.794
Year 4 0.735
Year 5 0.681
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