A firm is considering two mutually exclusive investments, each with an initial outlay of $100,000 and an expected life of 3 years. Assume that the firm has a cost of capital of 10 percent for each project. The two investments are of equal risk and have the following cash flows:
Investment A Investment B
Cash Flow Cash Flow
Year 0 -$100,000 -$100,000
Year 1 $40,000 $55,000
Year 2 $50,000 $55,000
Year 3 $110,000 $55,000
Calculate the payback period and the net present value for each investment.