A firm is considering the following projects. Its opportunity cost of capital is 12%.

			Cash Flows, $
Project	Time:	0	1	2	3	4
A		-5,500	+1,125	+1,125	+3,250	0
B		-1,500	0	+1,500	+2,250	+3,250
C		-5,500	+1,125	+1,125	+3,250	+5,500

a-1. What is the payback period on each project? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Payback Period

Project A Years

Project B Years

Project C Years

a-2. What is the discounted payback period on each project? (Do not round intermediate calculations. Round your answers to 2 decimal places. If any of the projects does not pay back on a discounted basis, enter zero ("0").)

Discounted Payback Period

Project A Years

Project B Years

Project C Years

b. Given that you wish to use the payback rule with a cutoff period of 2 years, which projects would you accept?

c. If you use a cutoff period of 3 years with the discounted payback rule, which projects would you accept?
d. Which projects have positive NPVs?

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

Answer rating: 100% (QA)

a1 The payback period on each project is calculated as follows Project A 5500 at Time 0 1125 at Time 1 1125 at Time 2 3250 at Time 3 totaling 9000 in positive cash flows The payback period is 2 years ... View the full answer