3.1. Capital Budgeting Decision Making (7 marks) Case Study: Assume that your group is working in Finance Department of a construction company. Your company is considering to invest in a 5-year project. Two options are recommended: Option 1: Build a new commercial building in the central city of Brisbane. Option 2: Build a new residential apartment block in the suburban area of Sydney. Your company's Management Board is very concerned about the efficiency in utilizing the invested capital in the recent projects and has especially requested your financial team to recommend a project evaluation method that can address the concern and take into consideration the limited available financing resources. The table below shows the estimated cash flows available for each option: Initial Investment Cash flow in Year 1 Year 2 Year 3 Year 4 Year 5 Option 1 Commercial building Option 2 Residential block 3,500,000 2,300,000 720,000 460,000 860,000 550,000 875,000 570,000 956,000 660,000 900,000 720,000 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 2.5 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods, the BOM's concern of efficiency 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)