Your plans to invest $200 million in two (2) projects. The first project you are contemplating is to a restaurant and sports bar and the second is to invest in a hardware store. The problem is that you have never been one to stay with and project for too long, so you figure that your time frame is five years. Your target capital structure is 40% debt, 10% preferred stock and 5-% common stock. The interest rate on new debt securities is 8, the yield on preferred stock is 10%, the cost of retained earnings is 15% and the tax rate is 30%. i) Compute the project’s cost of capital. B) The following are the net cash flow estimates (in thousands of dollars) of the two (2) proposed projects, you are planning to invest in. Expected Net Cash Flow Year Restaurant & Bar Hardware $M $M 0 (200) (200) 1 10 70 2 60 50 3 100 40 4 120 80 5 150 100 Required: i) What is capital budgeting? ii) Explain the difference between independent projects and mutually exclusive projects iii) Compute the Net Present Value (NPV) for each project. iv) Which project should be accepted if they are independent and why? v) which project should be accepted if they are mutually exclusive and why? vi) Would the Net Present Value (NPV) change if the cost of capital changes?