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Project Choices

The new financial analyst does not like the paybak approach in - 35091 - and determines that the firm's required rate of return is 15 %. His recommendation would be to _________

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

The following is the case - 35091 -

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 & reflect why - thanks!

Solution Preview

Rate of return: Project A = (60000-40000)/40000=50% >15%
Rate of ...

$2.19