Question 1 (25 marks) John Watson, the CFO of Projection Investment Inc., is considering two mutually exclusive projects: Year Cash flow (X) $ million Cash flow (Y) $ million 0 -400 -400 185 43 2 155 128 126 143 4 62 285 In each case, show your calculations clearly, a. If he applies the Internal Rate of Return (IRR) criterion, which project will he choose? (5 marks) b. If he applies the Net Present Value (NPV) criterion with a required return of 9%, which project will he choose? (5 marks) c. At which discount rate (correct to one decimal place of a percentage) would he be indifferent between these two projects? (5 marks) d. What are the advantages of using a payback period to evaluate cash flow? Illustrate a circumstance under which using payback might be appropriate. (6 marks) e. Suppose a finance manager is quoted as saying, 'Our firm uses the stand-alone principle. Because we treat projects like mini-firms in our evaluation process, we include financing costs because they are relevant at the firm level. Critically evaluate this statement (4 marks)