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Here are the expected cash flows for three projects: Project Year    0    1   ...

Here are the expected cash flows for three projects:

Project Year    0    1    2 3 4

A    -5,400    +1,100 +1,100    +3,200 0

B    -1,400    0    +1,400    +2,200    +3,200

C    -5,400    +1,100 +1,100    +3,200 +5,200

a. what is the payback period on each of the projects?

b. If you use a cutoff period of 2 years, which projects would you accept?

c. If you use a cutoff period of 3 years, which project would you accept?

D-1. If the opportunity cost of capital is 10%, 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 of False?

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Answer #1

Answer b.
The project b should be selected because the money will be recovered within a 2 years

Answer C.:

All or any of the projects can be accepted as the money will be recovered within a period of 3years.

Answer D-2:

Project B and Project C have positive NPVS.

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