The following data is related to two investment projects, and only one project may be selected:

	Project (A) ()	Project (B) ()
Initial capital expenditure	25,000	25,000
Profit (loss) year 1	17,500	10,000
2	15,000	10,000
3	12,500	12,000
4	10,000	18,000
Estimated resale value at end of year 4	5,000	5,000

Notes:

1. Profit is calculated after deducting straight-line depreciation
2. The cost of capital is 10%

Required:

(a) Calculate for each project:

(i) Payback period

(ii) Net present value (NPV)

(b) Explain which project you would recommend for acceptance.

(c) Briefly discuss the relative merits of using NPV and payback period for making capital budgeting decisions.