Suppose Your Firm Is Considering Two Mutually Exclusive, Required Projects

question 124

Multiple Choice

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 8 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and three years, respectively.
$$\begin{array}{l}\begin{array} {| l | l | l | l | l | }\hline\text {Time: }&0&1&2&3\\\hline\text {Project A Cash flow:}&-20,000&10,000&30,000&1,000\\\hline\text {Project b Cash flow:}&-30,000&10,000&20,000&50,000\\\hline\end{array}\end{array}$$
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

• A) Accept both A and B
• B) Accept neither A nor B
• C) Accept A, reject B
• D) Reject A, accept B

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Definitions:

Single-Parent Families

Single-Parent Families are families with children that are headed by a single parent as a result of divorce, death, or other circumstances.

Divorce

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High Rate

An elevated level or number in a given context, such as interest rates, inflation, or speed.

Second Shift

Refers to the work shift typically in the evening or at night, following the first or day shift; also refers to the phenomenon of individuals working a second round of duties, such as domestic chores, after their primary job.