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Cash Flows (dollars) Project Year: 0 1 2 3 4 A 6,600 + 1,400 + 1,400 + 3,800 0 B 2,600 0 + 2,600 +
Cash Flows (dollars) | ||||||||||||||||
Project | Year: | 0 | 1 | 2 | 3 | 4 | ||||||||||
A | 6,600 | + | 1,400 | + | 1,400 | + | 3,800 | 0 | ||||||||
B | 2,600 | 0 | + | 2,600 | + | 2,800 | + | 3,800 | ||||||||
C | 6,600 | + | 1,400 | + | 1,400 | + | 3,800 | + | 5,800 | |||||||
a. | What is the payback period on each of the projects? |
Project | Payback period |
A | years |
B | years |
C | years |
b. | If you use a cutoff period of 2 years, which projects would you accept? | ||||||||||||||||
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c. | If you use a cutoff period of 3 years, which projects would you accept? | ||||||||||||||||
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d-1. | If the opportunity cost of capital is 10%, calculate the NPV for projects A, B, and C. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) |
Project | NPV |
A | $ |
B | $ |
C | $ |
d-2. | Which projects have positive NPVs? | ||||||||||||||||
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e. | "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? | |||||
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