Problem: 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
|
Q1. If the opportunity cost of capital is 10 percent, which projects have a positive NPV?
Q2. Calculate the payback period for each project.
Q3. Which project(s) would a firm using the payback rule accept if the cutoff period is three years?