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Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time: 0 1 2 3

Project A Cash Flow -24,000 14,000 34,000 5,000

Project B Cash Flow -34,000 14,000 24,000 54,000

Use the profitability index rule to evaluate these projects; which one(s) should it be accepted or rejected?

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