The CFO of Advo Corporation is considering two investment opportunities. The expected future cash inflows for each opportunity follow:

Both investments require an initial payment of \($400,000\). Advo’s desired rate of return is 16 percent.

Required

a. Compute the net present value of each project. Which project should Advo adopt based on the net present value approach?

b. Use the summation method to compute the payback period for each project. Which project should Advo adopt based on the payback approach?

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Year 1 Year 2 Year 3 Year 4 Project 1 $144,000 $147,000 $160,000 $178,000 Project 2 204,000 199,000 114,000 112,000