(a) A small business has a choice of investing 400,00 in one of two projects. The expected cash flow from these two projects over a four year period is given below:

Year 1234 Project A cash flow () 90,000 101,000 109,000 141,000 Project B cash flow () 10,000 60,000 120,000 190,000

Year	1	2	3	4
Project A cash flow	90,000	101,000	109,000	141,000
Project B cash flow	10,000	60,000	120,000	190,000

1. (i) Which of these projects would you advise the small business to invest in when interest is compounded annually at 5%?

2. (ii) What would be your advice if interest was compounded annually at 2%?

3. (iii) Calculate the Internal Rate of Return (IRR) for each project.

4. (iv) Explain the purpose of IRR in investment appraisal.