You Are Considering Two Mutually Exclusive Projects

question 101

Multiple Choice

You are considering two mutually exclusive projects. Project A has cash flows of −$72,000, $21,400, $22,900, and $56,300 for Years 0 to 3, respectively. Project B has cash flows of −$81,000, $20,100, $22,200, and $74,800 for Years 0 to 3, respectively. Both projects have a required 2.5-year payback period. Should you accept or reject these projects based on payback analysis?

• A) Accept Project A and reject Project B
• B) Reject Project A and accept Project B
• C) Accept both Projects A and B
• D) Reject both Projects A and B
• E) You cannot apply the payback method to these projects.

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Definitions:

Moderate Risk

A level of danger or potential for loss that is considered to be within a reasonable or manageable range.

Typical Entrepreneur

Someone who sets up and runs business ventures, facing more significant financial risks than typically expected.

Careful Examination

A diligent and thorough inspection or analysis of an object, document, or situation to ascertain its condition or validity.

Perseverance

The quality of persistence and determination in doing something despite difficulty or delay in achieving success.