Leslie is charged with determining which small projects should be funded.Along with this assignment,she has been granted the use of $15,000 for a maximum of two years on a discounted basis.She is considering three projects.Project A costs $7,500 and has cash flows of $4,000 a year for Years 1 to 3.Project B costs $8,000 and has cash flows of $3,000,$4,000,and $3,000 for Years 1 to 3,respectively.Project C costs $2,000 and has a cash inflow of $2,500 in Year 2.What decisions should she make regarding these projects if she assigns them a mandatory discount rate of 8.5 percent? Explain why.
A)Accept either Projects A and C or Projects B and C,but not all three as there is insufficient financing
B)Accept Project C and reject Projects A and B because only Project C has a discounted payback that is less than two years
C)Accept Projects A and C and reject Project B as they have the shortest discounted payback periods that fit within the $15,000 allocation
D)Accept Projects A and C and reject Project B as A and B payback within two years
E)Accept Projects B and C and reject Project A as this combination uses the most initial capital

Question

Quizplus · Accepted Answer

Project C is the only one with a discounted payback period of less than two years, making it the most viable option under the given constraints. Projects A and B have longer payback periods when considering the 8.5 percent discount rate, making them less attractive given the two-year funding condition.

Leslie Is Charged with Determining Which Small Projects Should Be