Problem:
Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable.
In this particular case, if the decision is made by choosing the project with the shorter payback, some value (in terms of NPV) may be forgone. How much value will be lost in this instance?
WACC: 10.00%
0 1 2 3 4
CFS -$1,000 $500 $800 $0 $0
CFL -$2,100 $400 $800 $800 $1,000