Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures: Using the high-low method, the estimated variable cost per machine hour is: Multiple Choice $0.90 $070 Alex Conrad, financial analyst for Rom Co, is presenting two mutually exclusive capital budgeting project proposals to the management team. The preliminary results for the net present value (NPV) and internal rate of return (IRR) analyses of the two projects being discussed are as follows. Project 1 is expected to have a positive after-tax cash flow of $200.000 per year for six years after the initial investment, and Project 2 is expected to have a positive after-tax cash flow of $85,000 for six years after the initial investment. During the meeting. Conrad was asked to explain several issues related to his analysis of the projects. Required: 1. Because of volatility in the financial markets, the company's cost of equity may be higher than assumed in this analysis. This is important as Romico is entirely equity financed a. What cost of equity was used in this analysis? Explain your answer. b. Would an increase in the cost of equity affect the NPV and IRR of the projects, and thus the desirability of undertaking the projects? Explain your answer. 2. There is a possibility that the corporate income tax rate may be lowered in the near future. If this were to occur, how would this affect the NPV and IRR of the projects, and the desirability of investing in the projects? 3. a. What is the payback period for each project? Show your calculations. b. identify and enplain three weaknesses of using the payback period to decide on doing these projects