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

b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
c. If you use a cutoff period of three years, which projects would you accept?
d. If the opportunity cost of capital is 10%, which projects have positive NPVs?
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?
f. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects?
Will it turn down positive-NPV projects?Explain.

Transcribed Image Text:

Cash Flows ($) Project o СЗ +3,000 C. -5,000 -1,000 -5,000+ +1,000 +1,000 0 +1,0002,000 3,000 +5,000 +1,000 +1,000 +3,000