As a financial analyst for your company, you have been asked to calculate the discounted payback period for the following projects and recommend whether your firm should accept or reject each project. Your firm’s cost of capital is 7.8% and your firm uses a maximum allowable payback period of six years. The cash flows associated with each project are shown in the following table.

a. What is the discounted payback period of each project?

b. Which projects should the company invest in based on the maximum allowable payback period?

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Year 0 1 2 3 4 5 6 7 8 9 10 Project X -$800,000 50,000 100,000 150,000 200,000 250,000 300,000 Cash inflows (CF) Project Y -$1,260,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Project Z -$2,100,000 425,000 465,000 489,000 515,000 518,000 535,000 565,000 596,000 615,000 628,000