Question: a. What is the payback period on each of the following projects? Cash Flows ($) Project C0 C1 C2 C3 C4 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
b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
c. If you use a cutoff period of three years, which projects would you accept?
d. If the opportunity cost of capital is 10%, which projects have positive NPVs?
e. "If a firm uses a single cutoff period for all projects, it is likely to accept too many short lived projects." True or false?
f. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? Will it turn down positive-NPV projects? Explain.