Question details

The Short-Line Railroad is considering a $100,000 investment in either of two companies.
$ 5.00

The Short-Line Railroad is considering a $100,000 investment in either of two companies. The cash flows are as follows:

Year

Electric Co.

Water Works

1..................

$70,000

$15,000

2..................

15,000

15,000

3..................

15,000

70,000

4-10.............

10,000

10,000

a.      Using the payback method, what will the decision be?

b.      Explain why the answer in part a can be misleading.

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