DEF Manufacturing is evaluating two investment opportunities, Project X and Project Y. The following information is provided:

• Initial Investment: $80,000 for each project
• Life: 4 years for both projects
• Salvage Value: $5,000 for each project
• Depreciation Method: Straight line
• Required Rate of Return: 12%

Projected Cash Flows:

Year	Cash flows (Project X)	Cash flows (Project Y)
1	20,000	25,000
2	20,000	20,000
3	20,000	15,000
4	20,000	10,000

a) What is capital rationing?

b) Differentiate between IRR and NPV.

c) Based on the data, compute: i) Payback period for both projects. ii) NPV for each project. iii) IRR for each project. iv) Recommend which project to accept.