Acme, Inc. is considering the following two investments, both of which cost $50,000 today. The firm's cost of capital is 8%. Answer the following questions based on the data below.
Year Investment A Investment B
1 $20,000 $25,000
2 $25,000 $30,000
3 $30,000 $10,000
4 $30,000 $12,000
1.Which of the two projects should be chosen under the payback method?
2.Which of the two projects should be chosen based on the net present value method?
3.Should the firm have more confidence in answer (1) or (2)? Why?