Assume projects A and B are mutually exclusive. The respective cash flows for projects A and B are stated below:

If the discount rate, based on an investment of similar risk, is 10%, which of the projects should be accepted based on:

(a) Payback period rule                                                             

(b) NPV rule                                                                         

(c) IRR rule                                                                                    

(d) Profitability Index criteria

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Project Year 0 Year 1 Year 2 Year 34 A $575,000 $373,000 $219,000 $185,000- B $980,000 $395,000 $477,000 $339,000 Project Year 0 Year 1 Year 2 Year 34 A $575,000 $373,000 $219,000 $185,000- B $980,000 $395,000 $477,000 $339,000

Answer rating: 100% (QA)

b NPV rule The net present value rule is the idea that company managers and investors should only invest in projects or engage in transactions that ha... View the full answer