A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.

Alternative I

Initial investment 64,000

Annual receipts 50,000

Annual disbursements 20,000

Annual depreciation 16,000

Expected life 4 years

Salvage value 0

Alternative II

Initial investment 120,000

Annual receipts 60,000

Annual disbursements 12,000

Annual depreciation 20,000

Expected life 6 years

Salvage value 0

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent.

1. Calculate the Cash flow paying particular attention to the cash flow impact of taxes and depreciation,

2. Calculate the net present value of each alternative.

3. Calculate the internal rate of return for each alternative.

4. If the company can implement only one of the two alternatives, and there is no restriction on investment amount, which alternative should be chosen? Why?