Suppose that a company is considering for investment in a projects proposed by l regional state in two different and mutually exclusive projects: details regarding cost of investment and expected cash flows are given as follows: The two Projects have an initial in vestment cost for Project one and Project two Br. 1,780,000 and Br. 3,220,000 respectively. The discount rate for project evaluation is 12% which is the market rate.

Additionally the operating costs and expected cash flows are given under the following table.

Year Project one Project Y Operating cost Cash inflow Opportunity cost Cash inflow

1 Br. 420,000 Br. 685,000

2 80,000 515,000 85,000 595,000

3 375,000 650,000

4 60,000 500,000 702,000

5 565,000 92,000 615,000

Required: which project should be selected by the company using the following methods

a. Payback period method

b. Net present value method