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VWX Inc. is considering two projects, Project G and Project H. Both projects require an initial investment of GBP 65,000. The projected cash flows are

VWX Inc. is considering two projects, Project G and Project H. Both projects require an initial investment of GBP 65,000. The projected cash flows are as follows:

Year

Cash flows (Project G)

Cash flows (Project H)

(Initial Investment)

(65,000)

(65,000)

1

20,000

15,000

2

15,000

25,000

3

10,000

20,000

4

5,000

15,000

a. Calculate the payback period for both projects.

b. Based on the payback period and a cutoff period of 3 years, which project should VWX Inc. choose? Explain your reasoning.

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