100% Part 3: Capital Budgeting and Project Evaluation (15 marks) 3.1. Capital Budgeting Decision Making (7 marks) Case Study: Assume that your group is working in Finance Department of a food processing company. Your company is considering to buy a new assembly line to replace the old one. Your company's suppliers offered two models of assembly line which perform the same function, having different initial investment and annual operating expenses. The table below shows the estimated cash flows available for each option: Option 1 Option 2 Initial Investment 1,523,000 1,645,000 Annual expense Year 1 56,000 62,000 Year 2 56,000 62,000 Year 3 56,000 62,000 Year 4 56,000 62,000 Year 5 56,000 62,000 Year 6 62,000 You are required to write a short report to the company's Management: 1) To select a relevant method among five investment criteria of Net Present Value (NPV), Equivalent Annual Cost (EAC), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for this project, given the discount rate applied for all project is xxx% (to be provided later) and the company's benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you H15002 Finance for Business Group Assignment T3 2021Page 6 of 9 choose the specific method based on its pros and cons compared to other methods and the financial circumstance of the company. (2 marks) 2) To perform the selected method and present the outcome of your project evaluation and recommend the option 1 or 2 should the company choose for this project. Your justification must include calculation steps and numerical outcomes. (5 marks) Students are compulsorily required to attend online interactive tutorial session in week 8 and week 9 to know how to work on these capital budgeting questions with correct discount rate, terminologies, templates and calculations. Details of explanation will not be provided in tutorial solution