You have been asked to analyse two proposed capital investment projects, Project X and Project Y, by Square Parts, Ltd., a local specialty retailer. Both projects are sophisticated inventory control systems based, but while Project X is specifically designed for inventory processing and control in the retailing business, Project Y relies on a general-purpose software. Each project has a cost of £10,000, and the cost of capital for both projects is 12%. The projects' expected net cash flows are as follows:
a. Explain what capital budgeting is.
b. Calculate each project's nominal payback period (PB), net present value (NPV), internal rate of return (IRR), and profitability index (PI)(5 for PB, 10 for NPV, 10 for IRR and 5 for PI marks)
c. Should both projects be accepted if they are interdependent non mutually exclusive
d. Which project should be accepted if they are mutually exclusive?
e. How could the firm fund this investment?
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