(a) Company EEF ltd is considering an investment of 100,000. The desired payback period is 3 years. The board of directors have identified two alternatives; project A and project B.

The expected annual cash flows are as follows:

Cash flow: Project A Project B

(-) (-)

Y0 100,000.00 100,000.00

Y1 35,000.00 35,000.00

Y2 28,000.00 35,000.00

Y3 32,000.00 35,000.00

Y4 40,000.00 35,000.00

Required: Calculate the Payback period of each project and advise EEFs board of directors which project they should invest in. (7 marks)