Consider the following two mutually-exclusive projects and their cash flows:

Project A Project B

Year 0 -5000 -20000

Year 1 3000 7000

Year 2 2000 7000

Year 3 2000 7000

Year 4 2000 7000

Year 5 1000 7000

The investor compares the two projects using three different rules:

Rule I - NPV rule

Rule II - IRR rule

Rule III - Payback rule with a payback period <= 2 years

Assuming that the cost of capital for both projects is 10%, the investor should pick Project A over Project B following:

Rule I only

Rule II only

Rule III only

Rules I and II

Rules I and III