Assume a $80,000 investment and the following cash flows for two alternatives.

Year Investment A Investment B 1 $ 20,000 $ 45,000 2 30,000 25,000 3 22,500 25,000 4 15,000 5 20,000

a. Calculate the payback for investment A and B.

Investment A _______ years

Investment B ___________ years

b. Which investment would you select under the payback method?

Investment A

Investment B

c. If the inflow in the fifth year for Investment A was $20,000,000 instead of $20,000, would your answer change under the payback method?

Yes

no