The Investment Plans The central part of Anandam's expansion plan includes building a new factory, and Mr. Agarwal has a series of innovative ideas to implement there. According to the preliminary schedule, the construction will start within a year, and the new facility should be fully operational three years later. To satisfy the immediate needs for expansion, Mr. Agarwal plans to purchase a manufacturing facility equipped with the used machines that he will sell or scrap after relocating production to the newly constructed space. Mr. Agarwal has spent 180,000 researching all possible options and located two facilities that could satisfy Anandam's intermediate needs. Facility A can be used immediately upon purchasing, but its equipment, while in good condition, is relatively old and will have to be scrapped at the end of the five-year period. Facility B is more spacious and has a more convenient location, but Mr. Agarwal will need to replace some equipment at the outset. On the other hand, he will be able to sell the equipment upon moving production to his new factory. Anandam's now full-time accountant calculated the costs associated with the two potential investments and estimated the net cash flows for the next five years. The results of his calculations are shown in Table 1. With all the figures at hand, Mr. Agarwal compared how soon he would be able to recover his investments in each case and concluded that he should purchase Facility A because of the faster payback period.

a) Comment on Mr. Agarwal's approach to making investment decisions. What are the advantages and shortcomings of the payback method?