Question: The Short-Line Railroad is considering a $185,000 investment in either of two companies. The cash flows are as follows:
|
Year
|
Electric Co.
|
Water Works
|
|
1
|
$
|
95,000
|
|
$
|
45,000
|
|
|
2
|
|
45,000
|
|
|
45,000
|
|
|
3
|
|
45,000
|
|
|
95,000
|
|
|
4-10
|
|
25,000
|
|
|
25,000
|
|
|
a. Compute the payback period for both companies. (Round your answers to 1 decimal place.)
b. Which of the investments is superior from the information provided?