, Preto Ltd is considering expanding its operations in South Africa. The directors have two options available to them that they identify as Project A and Project B. The details are as follows:

	Project A	Project B
Initial investment Life Profit after tax Net cash inflows Annuity Factor	$112,500 4 years $18,000 $37,500 2.914	$130,000 5 years $20,000 $40,000 3.433

The directors want you to state if the projects are acceptable and given a choice which one you would select giving working and reasons. Furthermore because the directors want to be sure they select the correct option, they want you to evaluate the above projects using the following four methods:

1. Accounting rate of return - The required rate is 15%
2. Payback period - A project is required to pay for itself within 3.25 years
3. NPV assuming an interest rate/cost of capital of 14%
4. Profitability Index