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

Alternative

I

Alternative

II

Initial investment

$64,000

$120,000

Annual receipts

$50,000

$60,000

Annual disbursements

$20,000

$12,000

Annual depreciation

$16,000

$20,000

Expected life

4 years

6 years

Salvage value

0

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.

b. Calculate the net present value of each alternative.

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

d. 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?