Table 10.3
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
-If the firm in Table 10.3 has a required payback of two years, it should ________.
A) accept Project A and Project B
B) accept Project A and reject Project B
C) reject Project A and accept Project B
D) reject both the projects

Question

Table 10.3
A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: 
-If the firm in Table 10.3 has a required payback of two years, it should ________.
A) accept Project A and Project B 
B) accept Project A and reject Project B 
C) reject Project A and accept Project B 
D) reject both the projects

Quizplus · Accepted Answer

The payback period for Project A is 1.6 years and for Project B it is 2.5 years. As the required payback period is two years, only Project A meets this criterion. Therefore, the firm should accept Project A and reject Project B.

Table 10.3 A Firm Is Evaluating Two Projects That Are Mutually Exclusive