Using the payback method what will the decision


The B & O Railroad is considering a $100,000 investment in either of two companies. The cash flows are as follows:

Year                Electric Company                  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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Finance Basics: Using the payback method what will the decision
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