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(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;
(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)
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