To determine which project the company should choose based on the payback period method, we first calculate the payback period for each project. The payback period is the time it takes for cumulative cash inflows to recover the initial investment.
Initial investment: $100,000
Annual cash inflow: $35,000
Total Payback Period for A: $2 + 0.857 = 2.86$ years (approx.)
Initial investment: $100,000
Cash inflows: Year1=$45k, Year2=$45k, Year3=$20k
Total Payback Period for B: $2 + 0.5 = 2.5$ years
The payback period method favors the project with the shorter payback period (faster recovery of investment).
Project B has a shorter payback period (2.5 years) than Project A (2.86 years).
Answer: The company should choose Project B based on the payback period method.
$\boxed{Project B}$
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