Spice Island Corporation is considering investing in one of two projects A or B. The initial

cost and net cash inflows from each project are shown below. The opportunity cost for both projects is 10% per cent.

Cash Flow	Project A	Project B
	$	$
Initial Cost	5 000 000	5 400 000
Net Cash Inflows
Year 1	1 000 000	1 400 000
Year 2	1 300 000	1 600 000
Year 3	1 300 000	1 600 000
Year 4	1 200 000	1 600 000
Year 5	1 200 000	1 200 000

Discount factors at 10% per annum

Year	Factor
1	0.9091
2	0.8264
3	0.7513
4	0.6830
5	0.6209

Required:

1. Calculate the average rate of return on initial capital.
2. Calculate the average rate of return on average capital.
3. Calculate the payback period for each project.
4. Based on the payback method, identify the project in which the company should invest, giving ONE reason for your choice.
5. Calculate the net present value (NPV) for Project A. Identify the project in which the company should invest, giving ONE reason for your choice.