An investment firm is evaluating three potential investments, X, Y, and Z. Here are the details:

• Investment X requires an initial outlay of $500,000 and is expected to generate annual cash inflows of $150,000 for the next 5 years.
• Investment Y requires an initial outlay of $600,000 and is expected to generate annual cash inflows of $170,000 for the next 5 years.
• Investment Z requires an initial outlay of $700,000 and is expected to generate annual cash inflows of $190,000 for the next 5 years.
• The cost of capital for all investments is 8%.

Requirements:

1. Compute the payback period for each investment.
2. Calculate the NPV of each investment.
3. Calculate the profitability index for each investment.
4. Recommend which investment should be pursued and explain why.