Question

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 9 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	-21,000	11,000	31,000	2,000
Project B Cash Flow	-31,000	11,000	21,000	51,000

Use the PI decision rule to evaluate these projects; accept the project with the higher PI value.

• accept both A and B

• accept A, reject B

• accept neither A nor B

• reject A, accept B

Answer 1