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7. Offshore Drilling Co., imposes a payback period cutoff of three years for its international investment projects. The company has the following two projects available:
7. Offshore Drilling Co., imposes a payback period cutoff of three years for its international investment projects. The company has the following two projects available: (15 marks) Year A B 0 ($30,000) ($45,000) 1 15,000 5,000 2 10,000 10,000 3 10,000 20,000 4 5,000 25,000 a) What is the payback period of each project? Should they be accepted? Why? b) If the firm's cost of capital is 12%, what is net present value of each project? Should they be accepted? Why
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