**Answer:**

**a. 3 years and 3 years**

**b. either company can be selected**

**Explanation:**

a. In the payback, we analyze how many years the invested amount is recovered. The computation is shown below:

**= Initial investment ÷ Net cash flow**

**For Electric Co. **

In year 0 = $100,000

In year 1 = $70,000

In year 2 = $15,000

In year 3 = $15,000

In year 4 to 10 = $10,000

If we sum the first 3 year cash inflows than it would be $100,000 which is equal to the initial investment

So, the payback period equal to

= $100,000 ÷ $100,000 = **3 years**

In 3 years, the invested amount is recovered.

**For Water Works**

In year 0 = $100,000

In year 1 = $15,000

In year 2 = $15,000

In year 3 = $70,000

In year 4 to 10 = $10,000

If we sum the first 3 year cash inflows than it would be $100,000 which is equal to the initial investment

So, the payback period equal to

= $100,000 ÷ $100,000 = **3 years**

In 3 years, the invested amount is recovered.

b. Since both the companies has same payback period so **either company can be selected**