Question

A firm is considering the following projects. Its opportunity cost of capital is 10%.

		Cash Flows, $
Project	Time:       0	1	2	3	4
A	-7,300	+1,575	+1,575	+4,150	0
B	-3,300	0	+3,300	+3,150	+4,150
C	-7,300	+1,575	+1,575	+4,150	+7,300
d. Which projects have positive NPVs? Project A Project B Project C Projects A, B Projects A, C Projects B, C Projects A, B, C

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

Answer 1

Time Project A B 0 $(7,300.00) $ 1 $ 1,575.00 $ 2 $ 1,575.00 $ 3 $ 4,150.00 $ 4 $ - $ $ (1,448.57) $ (3,300.00) $ - $ 3,300.00 $ 3,150.00 $ 4,150.00 $ 4,628.42 $ (7,300.00) 1,575.00 1,575.00 4,150.00 7,300.00 3,537.43 NPV

Projects B, C

False, Payback ignores all the cash flows after cutoff date