Lez Foxwell has been operating a small transportation company for 25 years. The business has boomed in recent years, and Lez decided to invest another $300 000 to expand his business. There are two proposed mutually exclusive projects, and their cash flows are as follows. Year 0 1 2 3 5 150 000 Project A Project B -300 000 -300 000 50 000 200 000 50 000 100 000 50 000 100 000 430 000 100 000 100 000 Although Lcz only has limited formal business training, he feels that project B is better since he can get his initial invested money back in two years' time. He also wants to get some advice from his son David, who will soon graduate with an undergraduate degree in com- merce. For Lez's small business, the cost of capital is 10%. David would like to provide some information about the capital budgeting to Lez by addressing the following questions. CASE STUDY QUESTIONS 1. What is capital budgeting? Why is it important for the firm? 2. What is the payback period? What are the payback poriods for both projects? 3. What is the discounted payback period? What are the discounted payback periods for both projects? 4. What are the weaknesses of using the payback period to choose the project? Does the payback period tochnique have any usago? 6. What is the net prosent value? What is the NPV for each project? Based on the NPV technique which project should be accepted? 8. What is the internal rate of return? What is the IRR for each project? Based on the IRR technique, which project should be accepted? 7. What is the net present value for each project if the cost of capital of Lez's small businoss is 15%? In this case, which project should be accepted? 8. What is the IRR for each project if the cost of capital of Lez's small business is 15%? In this case, which project should be accepted? 9. Draw NPV profiles for both projects. At what discount rate do the NPV profiles cross? 10. Using the NPV profiles explain why sometimes there is conflict between the NPV and IRR techniques