how decide whether to accept or reject a project

Question

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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Comments

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