Question: Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time: 0 1 2 3

Project A Cash Flow -20,000 10,000 30,000 1,000

Project B Cash Flow -30,000 10,000 20,000 50,000

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

accept both A and B

reject A, accept B

accept A, reject B

accept neither A nor B

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