Question: Here are the expected cash flows for three projects: Project Year: A B C 0 -5,200 - 1,200 -5,200 Cash Flows (dollars) 1 2 3

Here are the expected cash flows for three projects: Project Year: A B C 0 -5,200 - 1,200 -5,200 Cash Flows (dollars) 1

Here are the expected cash flows for three projects: Project Year: A B C 0 -5,200 - 1,200 -5,200 Cash Flows (dollars) 1 2 3 + 1,050 + 1,050 +3,100 0 +1,200 +2,100 + 1,050 + 1,050 +3,100 4 0 +3,100 +5, 100 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 9%, calculate the NPV for projects A, B, and C. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project A 3 Years Project B 2 Years a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 9%, calculate the NPV for projects A, B, and C. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project C 3 Years Project B Projects A, B, and C $ 2,654.00 Project B and Project C False $ (959.00) A new computer system will require an initial outlay of $22,000, but it will increase the firm's cash flows by $4,700 a year for each of the next 7 years. a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 10%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Net present value Worth installing Yes b. Calculate the NPV and decide if the system is worth installing if the required rate of return is 15%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Net present value Worth installing No

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