1. You are the financial analyst for Weir Group plc, the global engineering firm. The company is considering the development of a new slurry pump in its existing products.
The pump is expected to improve market share for the company if it is fully integrated into its existing product line-up. With the pace of new technological developments, you expect the slurry pump to be obsolete by the end of 5 years. The equipment required for the project has no salvage value. The required return for projects of this type is 20 per cent, and the company has a 24 per cent tax rate. Should you recommend the project? Assume 20 per cent reducing balance depreciation. (75 marks)

2. Explain the difference between sensitivity analysis, scenario analysis and break-even analysis. In the context of the problem in part (a), what do you think is the most appropriate investment appraisal method? Explain your answer. (25 marks)

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Market size Market share (%) Selling price () Variable costs per unit (%) Fixed costs per year () Initial investment () Pessimistic 1,000 15 10,000 72 400,000 2,500,000 Expected 1,500 20 15,000 70 450,000 2,500,000 Optimistic 1,700 25 20,000 68 550,000 2,500,000