QUESTION 3 [25 MARKS]

(a) You have been recently put in charge of investment project appraisal at Electric Cars plc, and currently you are evaluating two expansion projects:

• Net cashflows are as given below, and they come at the beginning of each respective year. Initial investment goes out in Year Zero.
• There will be a decommissioning charge in Year Six.

• The factory will be financed through a standalone entity and you were told to use the WACC of 12% as your hurdle rate.

Year	Factory A, CFs, mn	Factory B, CFs, mn
0	-150	-150
1	100	120
2	160	120
3	100	120
4	110	130
5	100	120
6	-100	-100

Required: Using the NPV rule, evaluate the projects, state your decision. Briefly discuss some potential pitfalls, which make the NPV superior to IRR as a decision criterion.