Valley Products, Inc. is considering two independent investments having the following cash flow streams: Year Project A
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Valley Products, Inc. is considering two independent investments having the following cash flow streams:
Year Project A Project B 0 $50,000 $40,000 1 þ20,000 þ20,000 2 þ20,000 þ10,000 3 þ10,000 þ5,000 4 þ5,000 þ5,000 5 þ5,000 þ40,000 Valley uses a combination of the net present value approach and the payback approach to evaluate investment alternatives. It requires that all projects have a positive net present value when cash flows are discounted at 10 percent and that all projects have a payback no longer than three years. Which project or projects should the firm accept? Why? P-698
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