A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
$\begin{array}{rr}\text { Project: A }&&\text { Project: B }\
\hline\text { Initial } & \text { End-of-Year } & \text { Initial } & \text { End-of-Year } \
\text { Investment } & \text { Cash Flows } & \text { Investment } & \text { Cash Flows }\\hline
\$40,000&\$20,000&\$90,000&\$40,000\
&20,000 && 40,000 \
&20,000 && 80,000
\end{array}$
-If the firm in Figure 12.5 has a required payback of two (2) years, they should
A) reject project A and accept B.
B) accept projects A and B.
C) accept project A and reject B.
D) reject both.

Question

A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: 
$\begin{array}{rr}\text { Project: A }&&\text { Project: B }\
\hline\text { Initial } & \text { End-of-Year } & \text { Initial } & \text { End-of-Year } \
\text { Investment } & \text { Cash Flows } & \text { Investment } & \text { Cash Flows }\\hline
\$40,000&\$20,000&\$90,000&\$40,000\
&20,000 && 40,000 \
&20,000 && 80,000
\end{array}$
-If the firm in Figure 12.5 has a required payback of two (2) years, they should
A) reject project A and accept B.
B) accept projects A and B.
C) accept project A and reject B.
D) reject both.

Quizplus · Accepted Answer

Project A has a payback period of 2 years, meeting the firm's requirement, while Project B has a payback period of more than 2 years, thus not meeting the requirement.

A Firm Is Evaluating Two Projects That Are Mutually Exclusive