QUESTION 2 [25 MARKS] The Stenny and Homer Partnership is considering two long term capital investment proposals. Each investment has a useful life of 5 years. The relevant cash flows for the proposals are given below: Project Fix Project Mark Capital Investment $132,500 $165,000 Net Cash flows: Year 1 $ 39.000 $ 62,500 Year 2 39,000 62.500 Year 3 39,000 51,000 Year 4 39.000 19,000 Year 5 39,000 55,000 Additional Notes: 1. Both proposals are mutually exclusive and capital can be arranged as required. 2. The company's cost of capital on all projects is 12% 3. The required cash payback period as determined by management not to be greater than 4 years and cash payback periods for both projects is as below: 2. Project Fix 3.4 years and b. Project Mark 2.78 years Required: To assist Stenny and Homer to take the right investment decision, you are required to: (a) Determine the net present value for both the proposals (Round all your answers to the nearest whole number) 10 marks) (b) In your opinion, should the management consider the NPV as the most suitable method of evaluating this decision, critically evaluate this method and identify the shortcomings. Is there a better measure that could be considered? Which one, and justify its use in this case. 7 marks) (e.) Finally, having considered all methods stated and calculated in this case, summarize with valid justifications, which proposal should the management select ( marks) carch