Cash Flows (dollars) Given that you wish to use the payback rule with a cutoff p

Question

Cash Flows (dollars)

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

If the opportunity cost of capital is 8%, calculate the NPV for project A. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

If the opportunity cost of capital is 8%, calculate the NPV for project B. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

If the opportunity cost of capital is 8%, calculate the NPV for project C. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Cash Flows (dollars)

Project Year: 0 1 2 3 4 A 6,100 +3,500 +2,600 +3,000 0 B 2,100 0 +1,000 +1,100 +4,100 C 6,100 +1,000 +1,000 +2,100 +2,000

Explanation / Answer

Payback Period Project A Year Cash Flow Cumulative Cash Flow 0 -6100 -6100 1 3500 -2600 2 2600 0 3 3000 3000 Payback Period = 2 Years Project B 0 -2100 -2100 2 1000 -1100 3 1100 0 Payback Period= 3 Years Project C 0 -6100 -6100 1 1000 -5100 2 1000 -4100 3 2100 -2000 4 2000 0 Payback Period = 4 Years b. Project A because cash outflow will be recovered in 2 years only in Project A c. All of the above because in 4 years cash outflow of all the projects will be recovered d. NPV= 3500*.925+2600*.857+3000*.794-6100 NPV= 3238+2228+2382-6100 = $ 1748 Project B NPV= 1000*.857+1100*.794+4100*.735-2100 NPV=857+874+3015-2100 = $ 2646 Project C NPV= 1000*.925+1000*.857+2100*.794+2000*.735-6100 NPV= 925+857+1668+1470-6100 NPV = $ -1180

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.