You are a Financial Analyst with Challenger Ltd and the chief financial officer (CFO) requests you to evaluate two new capital budgeting proposals. Specifically, you are asked to provide a recommendation and also respond to a number of questions aimed at assessing your level of competence in capital budgeting process.

Instructions are as follows: Provide an evaluation of two proposed projects, both with identical initial outlays of $400,000. Both of these projects involve additions to a client's highly successful product line. The required rate of return on both projects is set at 11%. The expected after-tax cash flows from each project are as presented in the table below.

Initial outlay Inflow year 1 Inflow year 2 Inflow year 3 Inflow year 4 Inflow year 5 Inflow year 6 PROJECT x $400,000 $80,000 $140,000 $130,000 $160,000 PROJECT Y $400,000 $160,000 $160,000 $160,000 $160,000 $160,000 $ 160,000