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.
TIME 0 1 2 3
Project A Cash Flow -20,000 10,000 30,000 1,000
Project B Cash Flow -30,000 10,000 20,000 50,000
- Calculate the NPV and use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected and why?