Question #2 Capital Budgeting (18 marks) Proposal Proposal B Investment 450,000 950,000 1 cash flows 2 cash flows 3 cash flows 4 cash flows 5 cash flows I 125,000 125,000 125,000 125,000 125,000 440,000 250,000 250,000 250,000 250,000 Above are two Capital proposals Company XYZ is considering. Deprecation is straight line for 5 years and the company expects a 6% return on its capital investments. Required: 1. What is the cash pay back time for each of Proposals A and B? (2 marks) 2. What is the average rate of return for each of Proposals A and B if the average income for Proposal A is $35,000 and for Proposal B is $60,000? (4 marks) 3. What is the net present value for each of Proposals A and B? (6 marks) 4. What is the Internal Rate of Return for each of Proposals A and B? (4 marks) 5. Based on the internal rate of return, which investment would you choose and why? (2 marks)