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Consider the following projects:
CASH FLOWS ($)
PROJECT C_0 C_1 C_2 C_3 C_4 C_5
A -1000 +1000 0 0 0 0
B -2000 +1000 +1000 +4000+1000 +1000
C -3000 +1000 +1000 0 +1000 +1000

If the opportunity cost of capital is %10, which projects have apositive NPV?


Calculate the payback period for each project.


Which project(s) would a firm using the payback rule accept if thecutoff period were three years?


Calculate the discounted payback period for each period.


Which project(s) would a firm using the discounted payback ruleaccept if the cutoff period were three years?

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Trinidad Tremblay
Trinidad TremblayLv2
28 Sep 2019

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Related questions

Consider the following projects:
Cash Flows, $
Project C0 C1 C2 C3 C4 C5
A –2,600 +2,600 0 0 0 0
B –5,200 +2,600 +2,600 +5,600 +2,600 +2,600
C –6,500 +2,600 +2,600 0 +2,600 +2,600
a-1.

If the opportunity cost of capital is 10%, what is the NPV for each project? (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 $
a-2. Which project(s) have a positive NPV?
Project A and Project C
Project A and Project B
Project C
Project A
Project B
Project B and Project C
b.

Calculate the payback period for each project. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Project Payback Period
A year(s)
B year(s)
C year(s)
c. Which project(s) would a firm using the payback rule accept if the cutoff period were three years?
Project A
Project A and Project B
Project B and Project C
Project C
Project A and Project C
Project B
d.

Calculate the discounted payback period for each project. (Enter 0 if the payback period cannot be calculated. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Project Discounted
Payback Period
A year(s)
B year(s)
C year(s)
e.

Which project(s) would a firm using the discounted payback rule accept if the cutoff period were three years?
Project A
Project A and Project B
Project C
Project A and Project C
Project B
Project B and Project C

Consider the following information:


Cash Flows, $
Project C0 C1 C2 C3 C4
A –6,900 +2,100 +2,100 +3,100 0
B –2,200 0 +1,000 +3,900 +4,900
C –6,500 +3,500 +3,500 +4,900 +6,900


a.

What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)


Project Payback Period
A year(s)
B year(s)
C year(s)


b.

Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
Project B and Project C
Project A and Project C
Project A and Project B
Project B
Project C
Project A, Project B and Project C
Project A


c.

If you use a cutoff period of three years, which projects would you accept?
Project A, Project B and Project C
Project A and Project C
Project A
Project C
Project A and Project B
Project B and Project C
Project B


d. If the opportunity cost of capital is 8%, which projects have positive NPVs?
Project A, Project B and Project C
Project B and Project C
Project C
Project A and Project C
Project A
Project B
Project A and Project B


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?
True
False


f-1.

If the firm uses the discounted-payback rule, will it accept any negative-NPV projects?
Yes
No


f-2.

Will it turn down positive-NPV projects?
Yes
No

Cash Flows (dollars)
Project Year: 0 1 2 3 4
A −6,100 +3,500 +2,600 +3,000 0
B −2,100 0 +1,000 +1,100 +4,100
C −6,100 +1,000 +1,000 +2,100 +2,000


a. What is the payback period on each of the above projects?


Project Payback
A years
B years
C years


b.

Given that you wish to use the payback rule with a cutoff period of 2 years, which projects would you accept?
Project C
Project A
Project B
All of the above


c. If you use a cutoff period of 4 years, which projects would you accept?
Project A
Project B
Project C
All of the above


d-1.

If the opportunity cost of capital is 8%, calculate the NPV for project A. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)


NPVA $


d-2.

If the opportunity cost of capital is 8%, calculate the NPV for project B. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)


NPVB $


d-3.

If the opportunity cost of capital is 8%, calculate the NPV for project C. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)


NPVC $


e. "Payback gives too much weight to cash flows that occur after the cutoff date."
True
False

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