explain which project you would recommend for acceptance 597774

The following data is supplied relating to two investment projects, only one of which may be selected:

	Project A	Project B
Initial capital expenditure	50000	50000
Profit (loss) year 1	25000	10000
2	20000	10000
3	15000	14000
4	10000	26000
Estimated resale value end of year 4	10000	10000

Notes:

(1) Profit is calculated after deducting straight-line depreciation

(2) The cost of capital is 10%.

Required:

(a) Calculate for each project:

(i) average annual rate of return on average capital invested;

(ii) payback period;

(iii) net present value.

(b) Briefly discuss the relative merits of the three methods of evaluation mentioned in (a) above.