Isaac has analyzed two mutually exclusive projects that have 3-year lives. project a has an npv of $81,406, a payback period of 2.48
Isaac has analyzed two mutually exclusive projects, each with a 3-year lifespan. Project A has a net present value (NPV) of $81,406, a payback period of 2.48 years, and an average accounting return (AAR) of 9.31 percent. Project B, on the other hand, has an NPV of $82,909, a payback period of 2.57 years, and an AAR of 9.22 percent. The required return for Project A is 11.5 percent, while it is 12 percent for Project B. Both projects have a required AAR of 9.25 percent. Isaac needs to make a recommendation and justify it in 15 words or less.
What should his recommendation be?
a.) Accept both projects because both NPVs are positive.
b.) Accept Project A because it has the shortest payback period.
c.) Accept Project B and reject Project A based on the NPVs.
d.) Accept Project A and reject Project B based on their AARs.
e.) Accept Project A because it has the lower required return.
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