Problem 4 is about discounted payback.
Spitfire Aircraft Corporation has an investment policy that
requires acceptable projects to recover all costs within 3
years. The corporation uses the discounted payback method
to assess potential projects and uses a WACC of 10%. The
cash flows for the 2 independent projects are:
Year
Project A
Project B
0
-$100,000
-$80,000
1
40,000
50,000
2
40,000
20,000
3
40,000
30,000
4
30,000
0
In which investment project(s) should the firm invest?