PROBLEM #1 (20 points):

A. (10 points) Please discuss the difference between the payback period and discounted payback period. What is the major difference between the two? What is the major problem with using either methods to accurately evaluate projects?

B. (10 points) LaVernes Pie Stand is evaluating three independent projects and it is your job to decide which, if any, to accept. Using the discounted payback period and NPV methods of analysis, please come to an accept/reject decision for all projects and explain your reasoning. The company uses a 6% discount rate.

Projects	Year 0	1	2	3	4	5	6
A	-$20,000	$5,000	$2,500	$2,500	$2,500	$2,500	$0
B	-$10,000	$1,000	$1,000	$2,500	$3,000	$5,000	$500
C	-$3,000	$500	$500	$500	$500	$500	$1,500