Using the Profitability Index, which projects should you choose given the budget constraint and which would you choose if there was no capital rationing? Answer parts a through e regarding the following investment project. Ms. Phy Nance, a project analyst at DROF Motor Co., would like her project included in next year's capital budget. According to her report, the new equipment would cost $127, 437 and its projected cash flows would be as follows: Year 1 42,000 Year 2 46,000 Year 3 53,000 Year 4 53,000 Year 5 63,000 The cost of capital is 18% a) What is the NPV calculated by the analyst? If her numbers are correct should you accept the project? b) Assume that the analyst included shipping and set-up costs of $2, 437 in her estimation of the cost of the initial investment. Is this procedure correct? Why? c) Assume that no consideration was given to the fact that the floor space used for this project could be rented each year for $15,000 per year. How would this affect the calculation? d) Included in her analysis. Ms. Nance calculated that lighting, heating and air conditioning cost the company $8,000 per year and that the new equipment occupies 50% of the total floor space - so she deducted $4,000 per year from the cash flows to reflect overhead costs for the new equipment. Is this deduction correct or should it be reversed? e) Given your answers to b, c, and d. What is your calculation of Net Present Value for this project and would you include it in next year's capital budget