This section here provides information about Question 2. You will need to answer all parts of Question 2 (2a to 2h) in the following pages. You will need to use the information given below to answer all questions for this section. This information will be replicated for your convenience in each part as needed.

The table below presents data for two projects you are contemplating undertaking. These two projects perform the same essential purpose. They involve the acquisition of a special machine to make French Crpes, a very light and delicate pancake. Both projects require an initial investment of $85,000 (this is a cost at time 0). The cash flows associated with these projects are given in the table below. Your required rate of return is 12% per annum.

Year	Project L	Project S
1	30,000	35,000
2	35,000	40,000
3	50,000	55,000
4	65,000	50,000
5	-40,000	30,000
6	40,000	10,000
7	-20,000	.

2a. Which capital budgeting method will you use to evaluate these projects? Explain your choice of method.

2b. If both projects are acceptable according to the decision criteria of your chosen method, will you accept both projects or just one? Explain your answer.

2c. Use your chosen method to evaluate both projects and indicate which project or projects you will accept, if any. Explain your decision.

2d. Now assume that your cash flows forecast for Project S has changed. You estimate that in the final year, year 7, project S will have positive cash inflows of 20,000. Decide which project or projects, if any, to accept. Justify the method you have used to make your decision here.

Year	Project L	Project S
1	30,000	35,000
2	35,000	40,000
3	50,000	55,000
4	65,000	50,000
5	-40,000	30,000
6	40,000	10,000
7	-20,000	.20,000

2e. Now use the IRR method to make your decision. Does this differ from your answer in part d? if yes, which method will you use to derive a final decision.

2f. Now assume that Project L and Project S do not perform the same function, meaning they are not perfect substitutes for each other. Would this change your decision? How?

2g. Finally, can you identify how many potential IRRs Project L may have? Explain how you derived your answer (no calculations of IRRs needed here).