Valley Products, Inc. is considering two independent investments having the following cash flow streams:

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?

Transcribed Image Text:

Year Project A -$50,000 +20,000 +20,000 +10,000 +5,000 +5,000 Project B -$40,000 +20,000 +10,000 +5,000 +5,000 +40.000