Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows.
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Question:
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 10 percent, and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respectively.
Time0123
Proj A Cash Flow-1000300400700
Proj B Cash Flow-500200400300
Calculate the payback and use the payback decision rule to evaluate these projects; which one(s) should be accepted or rejected and why?
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