\begin{tabular}{|l|l|l|l|} \hline 2 & & Project A & Project B \\ \hline 3 & CAPEX / Initial Outlay & $12,600,000 & $8,300,000 \\ \hline 4 & Project life (years) & 7 & 5 \\ \hline 5 & Revenue (per year) & $6,800,000 & $5,600,000 \\ \hline 6 & Variable costs & $2,300,000 & $1,350,000 \\ 7 & Operating expense & $900,000 & $800,000 \\ \hline 8 & Investment in Net Working Capital (Year 0) & $1,200,000 & $600,000 \\ \hline \end{tabular} The company's tax rate is 30% and uses a straight-line depreciation method. There will be no 'salvage' value associated with these projects at the end of their project life. The company has a required rate of return of 8% per annum. a) Determine the Free Cash Flows, for each year, to the firm for both projects. ( 5 marks) b) Identify which project you recommend the company invest. (3 marks) c) What is meant by incremental cash flows from a capital budgeting perspective? Why should only incremental cash flows be included in the project valuation 16 process? (2 marks) d) Discuss the concept of net working capital (NWC), and identify its use within a business. ( 2 marks) \begin{tabular}{|l|l|l|l|} \hline 2 & & Project A & Project B \\ \hline 3 & CAPEX / Initial Outlay & $12,600,000 & $8,300,000 \\ \hline 4 & Project life (years) & 7 & 5 \\ \hline 5 & Revenue (per year) & $6,800,000 & $5,600,000 \\ \hline 6 & Variable costs & $2,300,000 & $1,350,000 \\ 7 & Operating expense & $900,000 & $800,000 \\ \hline 8 & Investment in Net Working Capital (Year 0) & $1,200,000 & $600,000 \\ \hline \end{tabular} The company's tax rate is 30% and uses a straight-line depreciation method. There will be no 'salvage' value associated with these projects at the end of their project life. The company has a required rate of return of 8% per annum. a) Determine the Free Cash Flows, for each year, to the firm for both projects. ( 5 marks) b) Identify which project you recommend the company invest. (3 marks) c) What is meant by incremental cash flows from a capital budgeting perspective? Why should only incremental cash flows be included in the project valuation 16 process? (2 marks) d) Discuss the concept of net working capital (NWC), and identify its use within a business. ( 2 marks)