RARE Ltd considering investing between two mutually exclusive projects, project Alpha and Project Beta. Both projects have a useful life of 5 years. The companys target payback period is 3 years.

The cash flow associated with the project are as follows:

Cash Flow Project Alpha Project Beta

Initial investment (R500,000) (R500,000)

Year 1: 150,000 300,000

Year 2: 200,000 225,000

Year 3: 125,000 350,000

Year 4: 300,000 150,000

Year 5: 250,000 90,000

Required:

a) Calculate payback period for each project and recommend which project RARE should select.

b) Calculate the net present value for each project and recommend which RARE should select on this method.