Question

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below....

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 12 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

-29,000

19,000

39,000

10,000

  Project B Cash Flow

-39,000

19,000

29,000

59,000


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

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