Question
In the table below, you can find the expected cash flows of three different projects: Cash Flows (dollars) Project Year: 0 1 2 3 4
In the table below, you can find the expected cash flows of three different projects:
Cash Flows (dollars) | ||||||||||||||||||||
Project | Year: | 0 | 1 | 2 | 3 | 4 | ||||||||||||||
A | 6,500 | + | 1,375 | + | 1,375 | + | 3,750 | 0 | ||||||||||||
B | 2,500 | 0 | + | 2,500 | + | 2,750 | + | 3,750 | ||||||||||||
C | 6,500 | + | 1,375 | + | 1,375 | + | 3,750 | + | 5,750 | |||||||||||
a. Calculate the payback period separately for each project.
b. Which projects do you accept according to the payback rule, assuming a cutoff period of 2 years?
c. Which projects do you accept according to the payback rule, assuming a cutoff period of 3 years?
d-1. Calculate NPVs separately for each project assuming that the opportunity cost of capital is 12%.
(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
d-2. Select the projects that have positive NPVs.
e. Is the following statement true or false?
"Payback gives too much weight to cash flows that occur after the cutoff date."
In the table below, you can find the expected cash flows of three different projects: Cash Flows (dollars) Project Year: 0 A -6,500 B - 2,500 C -6,500 + 1,375 0 +1, 375 + 1,375 +2,500 + 1,375 +3,750 + 2,750 +3,750 4. 0 +3,750 +5,750 a. Calculate the payback period separately for each project. b. Which projects do you accept according to the payback rule, assuming a cutoff period of 2 years? c. Which projects do you accept according to the payback rule, assuming a cutoff period of 3 years? d-1. Calculate NPVs separately for each project assuming that the opportunity cost of capital is 12%. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) d-2. Select the projects that have positive NPVS. e. Is the following statement true or false? "Payback gives too much weight to cash flows that occur after the cutoff date." Project B Project A Years Project C Years Years b. a. Payback period Which projects do you accept according to the payback rule, assuming a cutoff period of 2 years? c. Which projects do you accept according to the payback rule, assuming a cutoff period of 3 years? d-1. Calculate NPVs separately for each project assuming that the opportunity cost of capital is 12% d-2. Which projects have positive NPVs? "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? eStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started