Eldy Ltd has a choice of two projects to invest in$.$ The following details relate to these projects:

Project AA Project ZZ

Investment required

Expected economic lifetime

Minimum required rate of return

Net annual cash inflows

$1$ st year

$2$nd year

$3$rd year

$4$ th year

$5$ th year

$6$ th year

R $85000$

$6$ years

$12\%$

R $20000$

R $22000$

R $24000$

R $26000$

R $23000$

R $21000$

R $80000$

$6$ years

$12\%$

R $22000$

R $22000$

R $22000$

R $22000$

R $22000$

R $22000$

Use the following discount factors:

$\backslash$table$[[$Year$,$Discount Factor$],[1,0\mathrm{.}8929],[2,0\mathrm{.}7972],[3,0\mathrm{.}7118],[4,0\mathrm{.}6355],[5,0\mathrm{.}5674],[6,0\mathrm{.}5066]]$

Required:

$3\mathrm{.}1$ Use the Net Present Value $($NPV$)$ method to determine which project should be choosen.

$3\mathrm{.}2$ Discuss the merits of using the NPV method.

$3\mathrm{.}3$ Calculate the Payback Period for both projects.

$3\mathrm{.}4$ Describe the advantages and disadvantages of using the payback method.