1. The Reading Railroad is considering a $100,000 investment in either of two companies. Both projects are expected to have a 10-year life. The annual cash flows for the following 10 years are as follows:

Year	Electric Co	Water Works
1	$70,000	$15,000
2	$15,000	$15,000
3	$15,000	$70,000
4-10	$10,000	$10,000

1. Using the payback method, what decision should be made if the firm requires a payback of 4 years for all projects. Show your work. (5 Marks)
2. Explain why the answer in part a can be misleading. (2 Marks)
3. Calculate the NPV of the Electric Co investment given that Reading Railroad has a cost of capital = 8%. (4 Marks)
4. Using a financial calculator or excel, calculate the IRR of the Electric Co investment. (2 Marks)