Problem: Payback and NPV.
Question 1: What is the payback period on each of the following projects?
Project A
Project B
Project C
Question 2: Given that you wish to use the payback rule with a cutoff period of 2 years, which projects would you accept?
Question 3: If you use a cutoff period of 3 years, which projects would you accept?
Question 4: If the opportunity cost of capital is 10 percent, which projects have positive NPVs?
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Cash Flows, Dollars
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Project
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Time: 0
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1
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2
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3
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4
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A
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-5,000
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+1,000
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+1,000
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+3,000
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0
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B
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-1,000
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0
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+1,000
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+2,000
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+3,000
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C
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-5,000
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+1,000
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+1,000
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+3,000
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+5,000
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