A Firm Is Evaluating Two Projects That Are Mutually Exclusive

Multiple Choice

A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows:
$\begin{array}{rr}\text { Project: A }&&\text { Project: B }\\\hline\text { Initial } & \text { End-of-Year } & \text { Initial } & \text { End-of-Year } \\\text { Investment } & \text { Cash Flows } & \text { Investment } & \text { Cash Flows }\\\hline\$40,000&\$20,000&\$90,000&\$40,000\\&20,000 && 40,000 \\&20,000 && 80,000\end{array}$
-The new financial analyst does not like the payback approach (See Figure 12.5) and determines that the firm's required rate of return is 15%. His recommendation would be to

A) accept project A and reject B.
B) reject project A and accept B.
C) accept projects A and B.
D) reject both.