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Question 5: Capital Budgeting (8 MARKS) You work for a company that runs a fleet of buses that operate bus routes in a busy city. Your company regularly replaces older vehicles as they reach the end of their useful life. Currently the company replaces old buses with new diesel buses. However, the CEO wants to investigate replacing the old buses with new electric buses. Electric buses have lower running costs and maintenance but have a shorter lifespan. You have been asked to evaluate which option is best diesel or electric. You have collected the following information on the two options: Diesel: Cost to buy: $600,000 Annual running cost: $300,000 per annum Expect revenue: $450,000 per annum Useful lifespan: 10 years Electric: Cost to buy: $750,000 Annual running cost: $250,000 per annum Expect revenue: $450,000 per annum Useful lifespan: 8 years a) Calculate the payback period of the two options and advise which option is best based on the payback period. Click here to enter text. (2 Marks) b) Calculate the net present value of the two options and advise which option is best based on the NPV (The appropriate discount rate for both projects is 9.5%). Click here to enter text. (2 Marks) c) Calculate the Equivalent Annual Annuity for the two options and advise which is the best option? Click here to enter text. (2 Marks) d) Calculate the Internal Rate of Return of the two options. Which option should be recommended based on the IRR? Click here to enter text. 12 Marvel