Payback and NPV.

a. What is the payback period on each of the following projects?

b. Given that you wish to use the payback rule with a cutoff period of 2 years, which projects would you accept?

c. If you use a cutoff period of 3 years, which projects would you accept?

d. If the opportunity cost of capital is 10 percent, which projects have positive NPVs?

e. “Payback gives too much weight to cash flows that occur after the cutoff date.” True or false?

Transcribed Image Text:

Cash Flows, Dollars Project Time: 0 1 2 3 4 A -5,000 +1,000 +1,000 +3,000 0 B -1,000 0 +1,000 +2,000 +3,000 C -5,000 +1,000 +1,000 +3,000 +5,000