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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.
Reference: 06_02
Project A Project B
Year Cash Flow Year0 -75,000 0 -70,0001 19,000 1 10,0002 48,000 2 16,0003 12,000 3 72,000
Required rate of return 10% 13%Required Payback Period 2.0 2Required accounting return 8% 11%
Based upon the payback period and the information provided in the problem, you should: (Points: 2)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.
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