Practice question for Accounting \& Finance (Session 5) X Co is a highly geared company that wishes to expand its operations. Six possible capital investments have been identified, but the company only has access to a total of $820,000. The projects may not be postponed until a future period. After the projects end, it is unlikely that similar investment opportunities will occur. Expected net cash flows (including residual values) are: Projects A and E are mutually exclusive. All projects are believed to be of similar risk to the company's existing capital investments. Any surplus funds may be invested in the money market to earn a return of 9% per year. The money market may be assumed to be an efficient market. X Co's cost of capital is 12% per year. Discount factors at 12% are as follows: YR1-0.893, YR2-0.797, YR3-0.712, YR4- 0.636 and YR5-0.567. Annuity factor is 3.037 and 3.605, respectively for 4 and 5 years. Required: (a)Calculate the expected Net Present Value for each project, and rank the projects. (b)Assuming the projects are divisible, calculate the profitability index for each project, and rank the projects to determine how the money would be best invested. Explain briefly why the rankings differ from that in (a) above. (c)Now assume the projects are indivisible. Provide advise on how the funds are best invested. (d) Explain how uncertainty and risk could be considered in the investment process. (Total: 25 marks)