Isaac has analyzed two mutually exclusive project of similar size and has compil

Question

Isaac has analyzed two mutually exclusive project of similar size and has compiled the following information based on his analysis. Both projects have 3 year lives.

Project A Project B
Net Present Value $81,406 $82,909
Payback Period 2.48 years 2.31 years
Average Accounting Return 9.58 percent 9.53 percent
Required Return 11.5 percent 12.0 percent
Required AAR 9.25 percent 9.25 percent

Please provide formula with answer. Thank you. Isaac has been asked for his best recommendation given this information. His recommendations should be to accept: A. Both projects. B. Project B because has the shorter payback period. C. project B and reject project A based on their net present values. D. project A and reject project B based on their average accounting return. E. Neither project

Explanation / Answer

The answer is "C"

project B and reject project A based on their net present values

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