Pettway Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. Calculate and report the payback period for both projects (not an Excel function, go at least 2 decimal places). If the decision is made by choosing the project with the shorter payback, some value may be foregone. Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost. If we choose the project with shorter payback will the firm be foregoing or gaining value? How much? Be sure to show your work for deriving the value (using Excel functions) of both projects and the value gained or lost.

Cost of Capital: 6%

Year 1 2 3 4

Cash Flow Project S (8500) 3750 3400 1700 1200

Cash Flow Project L (8800) 2700 2580 2800 2900