Two mutually exclusive projects are being considered. The cash flows (in $000) for projects (S) and Long (L) are given below:

YEAR PROJECT S PROJECT L

0 -100 -100

1 70 40

2 70 40

3 40

4 40

a) Calculate the NPV of these projects at 10% cost of capital. Which project is more attractive? Is the decision you make a valid one? Why or why not?(1.5+1.5+1)

b) Use the EAA method to evaluate the attractiveness of these projects. Which project should be accepted using this method. (2+2+1)

c) Which method (NPV or EAA) is best in this case? Why? (2)

d) Would your decision be different if these two projects were independent? Why? (2)