Students are required to answer ALL questions in this paper. Question 1 (25 marks) John Watson, the CFO of Projection Investment Inc., is considering two mutually exclusive projects: Year Cash Flow (Y) Smillion -400 0 43 Cash Flow (X) Smillion -400 185 155 126 62 2 3 128 143 285 4 In each case, show your calculations clearly. (a) If he applies the Internal Rate of Return (IRR) criterion, which (5 marks) project will he choose? (b) If he applies the Net Present Value (NPV) criterion with a required (5 marks) return of 9%, which project will he choose? (c) At which discount rate (correct to 1 decimal place of a percentage) (5 marks) would he be indifferent between these two projects? (d) What are the advantages of using payback period to evaluate cash (6 marks) flow? Illustrate a circumstance under which using payback might be appropriate (e) Suppose a finance manager is quoted as saying, 'Our firm uses the (4 marks) 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