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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...

1. 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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