The Short-Line Railroad is considering a $110,000 investment in either of two companies. The cash flows are as follows:
| Year | Electric Co. | Water Works | ||||
| 1 | $ | 80,000 | $ | 15,000 | ||
| 2 | 15,000 | 15,000 | ||||
| 3 | 15,000 | 80,000 | ||||
| 4 – 10 | 15,000 | 15,000 | ||||
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?
