an australian software company is planning to onvest in a new service hub in singapore using equity (i.e. by issuing shares). an analysis by management has shortlisted two investment options: Option 1 has Net Present Value (NPV) of $120,000 and payback period of 5 years. Option 2 has NPV of $250,000 and the payback period of 10 years. the management of the company is risk-averse and prefers an investment project with lower risk.

a. the company has analysed investment options using two capital budgeting techniques. NPV and payback period. explain which method is preferred and why.

c. explain how financing their investment by raising funds from issuing shares (equity) would affect the income statement and balance sheet.