Problem:
What is the payback period on each of the following projects?
project time 0 1 3 4
a -5000 1000 1000 3000 0
b -1000 0 1000 2000 3000
c -5000 1000 1000 3000 5000
Given that you wish to use the payback rule with a cutoff period of 2 years, which project would you accept?
If you ue a cutoff period of 3 years, which projects would accept?
If the opportunity cost of capital is 10%, which projects have positive NPV's?
True or false does payback gives too much weight to cash flows that occur after the cutoff date?