a) The table below sets out data on an investment project:

Annual cash flow 2.5m

Investment cost 15m

Duration Ten years

Beta 1.4

Risk-free rate 3%

The average return on the market index 7%

What is the net present value of the project? Should the project be accepted?

b) Carry out a sensitivity analysis of the project concerning the annual cash flow, considering a 10% increase and a 10% reduction in the annual cash flow. Make the appropriate recommendations about whether you should invest.