A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm’s hurdle rate is 12%. The after-tax cash flows associated with each investment are:

 

Year     Investment A    Investment B

1           $2,000                 $1,000

2             1,500                   1,500

3             1,500                   2,000

4             1,000                   3,000

For each alternative, calculate the payback period, the net present value, and the profitability index. Which alternative (if any) should be selected?