Problem

Consider the following projects: Cash Flows ($)ProjectC0C1C2C3C4C5A−1,000+ 1,0000000B−...

Consider the following projects:

Cash Flows ($)

Project

C0

C1

C2

C3

C4

C5

A

−1,000

+ 1,000

0

0

0

0

B

−2,000

+ 1,000

+ 1,000

+4,000

+1,000

+ 1,000

C

−3,000

+ 1,000

+ 1,000

0

+1,000

+ 1,000

a. If the opportunity cost of capital is 10%, which projects have a positive NPV?


b. Calculate the payback period for each project.


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


d. Calculate the discounted payback period for each project.


e. Which project(s) would a firm using the discounted payback rule accept if the cutoff period were three years?

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Solutions For Problems in Chapter 5