You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.

\begin{array}{l}\begin{array} { | l | c | c | } \hline \text { Year } & \text { Project A } & \text { Project B } \\\hline 0 & £ 75,000 & £ 70,000 \\\hline 1 & £ 19,000 & £ 10,000 \\\hline 2 & £ 48,000 & £ 16,000 \\\hline 3 & £ 12,000 & £ 72,000 \\\hline\end{array}\\\begin{array} { | l | l | l | } \hline & \text { Project A } & \text { Project B } \\\hline \text { Required rate of return } & 10 \% & 13 \% \\\hline \text { Required payback period } & 2.0 \text { years } & 2.0 \text { years } \\\hline \text { Required accounting return } & 8 \% & 11 \% \\\hline\end{array}\end{array}

Based upon the payback period and the information provided in the problem, you should:
A)accept both project A and project B.
B)reject both project A and project B.
C)accept project A and reject project B.
D)accept project B and reject project A.
E)require that management extend the payback period for project A since it has a higher
Initial cost.

A £25 Investment Produces £27

Multiple Choice

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