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 (2) years, it should
A) accept projects A and B.
B) accept project A and reject B.
C) reject project A and accept B.
D) reject both.

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 (2) years, it should
A) accept projects A and B. 
B) accept project A and reject B. 
C) reject project A and accept B. 
D) reject both.

Quizplus · Accepted Answer

The payback period for Project A is 2 years which meets the firm's requirement. However, the payback period for Project B is 4 years which exceeds the firm's requirement. Therefore, the firm should accept Project A and reject Project B.

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