The difference between the present value of the inflows and the present value of the outflows is called Net Present Value, or NPV for short. NPV also represents value added . The value of the company will change by the NPV amount. Note that this rule is consistent with the goal of maximizing the value of the firm. The above assumes the cash flow at time 0 is negative and other cash flows are positive.
Cash flows can be positive or negative at any point in time, however.
To compute payback, find where the cumulative cash flow becomes positive. For mutually exclusive projects, the rule is to accept the project with the shortest payback. In effect the 'long' project's payback of 2.5 above ignores the cash flow in year 4. Some companies use payback however. A couple of comments about discounted payback.