Question 1 Excellent's plc have 3 investments to choose. The company prefer to finance these investments by their firm's cash on hand. The company have a budget constraint of 800,000. The investments cannot be divided. The inflation rate is 15% per annum. Below is the discounted cash flow analysis of the firm : Investment Cost () Year 1 Year 2 X Y Z -700,000 -210,000 -70,000 190,000 90,000 -80,000 220,000 90,000 -50,000 Year 3 () 400.000 90.000 250.000 The market portfolio return is 12%. The risk-free rate is 2%. The beta of Excellent plc is 0.5. Assume no taxation. Required: Rank the projects using the NPV and profitability index (PI) methods. Decide which projects should be chosen. (13 marks) (6) Evaluate whether the firm's usage of its cash balance rather than debt to finance its long-term investments is a good financial practice. (5 marks) (c) John who is one of the directors of Excellent plc claimed that there should not be any problems related to the discount rate in the capital budgeting process. Do you agree or disagree with John's claim ? Justify your stance with proper explanations. (3 marks) (d) One day, one of the directors argue that in the future, the firm should not link its financing decisions with its capital expenditures. Evaluate the director's argument to ascertain whether the firm should proceed on this by providing a relevant example. (4 marks) [Total: 25 marks]