Francesco Giovanni’s business partner, Pepino, has proposed that they invest in a coffee shop. This investment costs €90,000 today and promises to pay €22,000, €25,000, €25,000, €20,000, and €18,000 over the next 5 years. Alternatively, Pepino suggests they can invest €90,000 in a restaurant, which promises to pay €15,000, €15,000, €15,000, €35,000, and €40,000 over the next 5 years.

a. How long will it take for Francesco and Pepino to recoup their initial investment in the coffee shop?

b. How long will it take them to recoup their initial investment in the restaurant?

c. Using the payback period, which project should Francesco and Pepino choose?

d. Do you see any problems with their choice?