Matt is analyzing two projects of similar size and has prepared the following data. Both projects
have 5 year lives.
Project A Project B
Net present value $15,090 $14,693
Payback period 2.76 years 2.51 years
Average accounting return 9.3% 9.6%
Required return 8.3% 8.0%
Required AAR 9.0% 9.0%
Matt has been asked for his best recommendation about which project to choose. His recommendation should be to:
a. accept project B because it has the shortest payback period.
b. reject both projects because neither provides the required return.
c. accept project A and reject project B based on their net present values.
d. accept project B and reject project A based on their average accounting returns.
e. accept project B and reject project A based on both the payback period and the average accounting return.
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