It is your task to assess two mutually exclusive investment projects:

a) Which alternative would you select for acceptance under the conditions of the net present value method? Explain why.

b) Calculate the net present value for each project, and formulate your investment decision advice. All payments with the exception of the initial outlay are assumed to occur on the last day of the year.

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Initial outlay Economic life Alternative A 10,000 6 years 5% Alternative B 15,000 6 years 5% 800 Discount rate Annual cash outflow Annual cash inflow 3,100 3,900 1,000