Gonzalez Co. is considering two new projects with the following net cash flows. The company’s required rate of return on investments is 10%.

a. Compute payback period for each project. Based on payback period, which project is preferred?
b. Compute net present value for each project. Based on net present value, which project is preferred?

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Net Cash Flows Year Project 1 Project 2 Initial investment ..... $(60,000) $(60,000) 1.... 30,000 35,000 2..... 30,000 20,000 3..... 5,000 20,000