Say CPU is considering a capital project that will require an initial investment of $10m now, but that is expected to generate free cash flows of $3m, $3.5m and $4m over the next three years. Assume an appropriate discount rate for CPU is 8%.

(a) Calculate the discounted payback period (DPBP) for this project. If CPU management require a payback period of three years, should CPU accept or reject the project? Explain your answer.

(b) If you used non-discounted cash flows to calculate the payback period, would you be more likely, or less likely to accept the project? Explain your answer. (Include enough working to show your understanding the calculations)