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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.

This question was asked on Apr 21, 2010.

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