Street Walk Ltd. has the option of investing inthe following two projects of equal risk; they are mutually exclusive alternatives for expanding the firm's capacity.The firm's cost of capital is 14%.The cash flows for each project are given in the following table.

PROJECT A

PROJECT B

Initial investment

600,000

300,000

Year

Net cash inflows

Net cash inflows

1

150,000

145,000

2

200,000

90,000

3

240,000

85,000

4

280,000

120,000

Street Walk Ltd. has incurred a research and development expenditure of $30,000 initially for project A and $20,000 for project B, both of which are considered sunk costs for the business. Due to seasonal demand, business believes for project A only, they will have to incur additional electricity charge of $1,000 each year till year 4. At the end of year 4, the businessbelievesthat they could sell project A for $50,000 and project B for $40,000. The finance manager has also suggested that any investment that takes more than 3 years to pay back the initial investment should be rejected.

Calculate the net present value for each project.Using the net present value criterion, which project is preferable and why?