Question 1 (15 marks)

1. Company EEF Ltd is considering and investment of $100,000. The desired payback period is 3 years. The board of directors have identified two alternatives: Project A and B.

The expected annual cash flows are as follows:

Cash Flow:	Project A	Prject 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 cash project and advise EEFs board of directors which project they should invest in. (7 marks)