could persuade at least some of the chip makers to outsource this function to them. By exclusively specializing in this task, their little company would be able to slash costs by more than half, and thus allow the chip manufacturers to go in for 100% quality check for roughly the same cost as what they were incurring for a partial quality check today. The life of this project too is expected to be only about five years. The initial investment for this project is estimated at $ 1,100,000. After taking into account the sale of their patent, the net investment would be $900,000. As for the future, Charles and Caitlin were pretty sure that there would be sizable profits in the first year. But thereafter, the zircon content problem would slowly start to disappear with advancing technology in the wafer industry. Keeping this in mind, they estimate the future cash inflows for this project (call it Project B) as follows: PROJECT B YEAR 0 1 2 3 Expected CFs ($) -900,000 650,000 650,000 550,000 300,000 Charles and Caitlin now need to make their decision. For purposes of analysis, they plan to use a required rate of return of 20% for both projects. Ideally, they would prefer that the project they choose have a payback period of less than 3.5 years and a discounted payback period of less than 4 years. One of the concerns that Charles and Caitlin have is regarding the reliability of their cash flow estimates. The analysis depends on the accuracy of those projected cash flows! However, they are both aware that actual future cash flows may be higher or lower