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    Choicing Project

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    A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:

    Project "A" - Initial Investment = $40,000 & End-of-Year Cash Flows = $60,000

    Project "B" - Initial Investment = $90,000 & End-of-Year Cash Flows = $160,000

    If the firm above has a required payback of two (2) years, they shold _____.

    accept projects A & B, accept project A & reject B, reject project A & accept B, or reject both

    please advise answer & show why - thanks!

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    Solution Preview

    1. Projects are mutually exclusive so only once can be accepted.
    2. Criteria: ...