You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.

Project A Project B Year Cash Flow Year Cash Flow 0 -$75,000 0 -$70,000 1 $19,000 1 $10,000 2 $48,000 2 $16,000 3 $12,000 3 $72,000

Required rate of return 10 % 13 % Required payback period 2.0 years 2.0 years Required accounting return 8 % 11 %

Based on the net present value method of analysis and given the information in the problem, you should:

Question 1 options:

accept both project A and project B

accept project A and reject project B

accept project B and reject project A

reject both project A and project B

accept whichever one you want as they represent equal opportunities

Based upon the internal rate of return (IRR) and the information provided in the problem, you should:

Question 2 options:

accept both project A and project B

reject both project A and project B

accept project A and reject project B

accept project B and reject project A

ignore the IRR rule and use another method of analysis

ased upon the payback period and the information provided in the problem, you should:

Question 3 options:

accept both project A and project B

reject both project A and project B

accept project A and reject project B

accept project B and reject project A

require that management extend the payback period for project A since it has a higher initial cost

Based upon the profitability index (PI) and the information provided in the problem, you should:

Question 4 options:

	accept both project A and project B
	accept project A and reject project B
	accept project B and reject project A
	reject both project A and project B
	disregard the PI method in this case