2. Payback (S5.2) Consider the following projects:

Cash Flows ($)

Project C0 C1 C2 C3 C4 C5 A –1,000 +1,000 0 0 0 0 B –2,000 +1,000 +1,000 +4,000 +1,000 +1,000 C –3,000 +1,000 +1,000 0 +1,000 +1,000

a. If the opportunity cost of capital is 10%, which projects have a positive NPV?

b. Calculate the payback period for each project.

c. Which project(s) would a firm using the payback rule accept if the cutoff period is three years?