A company is choosing between the two investments, Project A and Project B. Both projects require an initial investment of $20,000.

The company's payback period criterion is three years or less. If only one project can be accepted, and all other things being equal, which project should the company select and why? The cash flows for each project are presented in the table.

Year Project A Project B

1

$9.000

$3.000

2

$10,000 $7.000

3

$3,000

$9,000

4

$2,000

$6,000

5

$6,500

$7,500

Proiect B should be accepted because its cash flows are more consistent from year to year.

O Project A should be accepted because the cash flows in years 1 and 2 are greater than those for Project B in years 1 and 2.

• Project B should be accepted because it provides greater total cash flows.
• Project A should be accepted because it is the only project which meets the 3-year criterion.