Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 8 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and three years, respectively.

Time0123Project A Cash Flow20,00010,00030,0001,000Project B Cash Flow30,00010,00020,00050,000

Use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Multiple Choice

Accept both A and B.

Accept neither A nor B.

Reject A, accept B.

Accept A, reject B.