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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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