The Square Box is considering two projects,both of which have an initial cost of $35,000 and total cash inflows of $50,000.The cash inflows of project A are $5,000,$10,000,$15,000,and $20,000 over the next four years,respectively.The cash inflows for project B are $20,000,$15,000,$10,000,and $5,000 over the next four years,respectively.Which one of the following statements is correct if The Square Box requires a 13 percent rate of return and has a required discounted payback period of 3.5 years?
A)Both projects should be accepted.
B)Both projects should be rejected.
C)Project A should be accepted and project B should be rejected.
D)Project A should be rejected and project B should be accepted.
E)You should be indifferent to accepting either or both projects.

Question

Quizplus · Accepted Answer

Project B should be accepted because it has higher cash inflows in the earlier years, allowing it to meet the discounted payback period requirement of 3.5 years more easily than Project A, given the 13 percent rate of return requirement. The discounted payback period calculates the time required to break even in present value terms, favoring cash flows that occur earlier.

The Square Box Is Considering Two Projects,both of Which Have