Question

value 10.00 points Consider the following projects Cash Flows (S) Project Co -2,800 -5,600 -7,000 2,800 2,800 2,800 2,800 2,500 2.800 2,800 2,800 2,800 8 5.800 a. If the opportunity cost of capital is 12%, which project(s) have a positive NPV? Positive NPV projects) O Project A O Project B O Project C O Projects A and B O Projects A and C Projects B and C O Projects A, B, and C O No project b. Calculate the payback period for each project: (Round your answers to 2 decimal places. If a project never pays back, enter "o". Project A Project B Project C year(s) year(s) year s)

Answer 1

NPV = Present Value of Cash Inflows – Present Value of Cash Outflows

Project A: -2,800 + 2,800*PVF(12%, 1 year)

= -2,800 + 2,500.4

= -299.6

Project B: -5,600 + 2,800*PVF(12%, 1 year) +2,800*PVF(12%, 2 year)+ 5,800*PVF(12%, 3 year)+ 2,800*PVF(12%, 4 year)+ 2,800*PVF(12%, 5 year)

= $6,736.8

Project C: - 7,000 + + 2,800*PVF(12%, 1 year) +2,500*PVF(12%, 2 year) + 2,800*PVF(12%, 4 year)+ 2,800*PVF(12%, 5 year)

= 861.3

Hence, answer is Projects B and C

b.Payback period: Payback period is the period in which the initial investment is recovered

Project A: 0 (it will never pay back)

Project B: 2 years (2800+2800 = 5600)

Project C: 3.61 years (5,300 recovered in first 2 years, remaining 1700/out of 2,800 taken proportionately from 4^th year)