Project Wolf: This project will require an immediate outlay of $2,250,000. This expenditure will not attract capital allowances. Annual cash inflows of $955,000 are expected to be constant for the life of the project. Material costs are expected to be $14,400 in the first year, rising at an annual inflation rate of 7.5% per annum. Other expenses are expected to be $18,000 in year 1 and these are expected to fall by 7.5% per annum over the life of the project. To undertake Project Wolf, factory space which is currently generating rental income will need to be used for the project. The rental income, which would not have been expected to change over the five-year period, is $75,000 per annum. This project will take the company in a new direction appealing to a different type of customer. Additional financial information: ? Corporation tax is paid at a rate of 20% and tax is payable one year in arrears. ? The weighted average cost of capital is 10% and, unless otherwise stated, cash flows occur at the end of the year to which they relate. ? A straight line method of depreciation at a rate of 20% is applied to all noncurrent assets.