Here are the expected cash flows for three projects:

____________________________________Cash Flows (dollars)_____________________________________

Project Year: 0 1 2 3 4

A -5, 200 +1, 050 +1, 050 +3, 100 0

B -1, 200 0 +1, 200 +2, 100 +3, 100

C -5,200 +1, 050 + 1, 050 +3, 100 +5, 100

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

Project Payback Period

A ? Years

B ? Years

C ? Years

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

• Project A
• Project B
• Project C
• Project A and Project B
• Project B and Project C
• Project A and Project C
• Project A,B, and C
• None

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

• Project A
• Project B
• Project C
• Project A and Project B
• Project B and Project C
• Project A and Project C
• Project A, B, and C
• None

d. If the opportunity cost of capital is 9%, calculate the NPV for projects A,B,C. Negative amounts should be indicated. Round 2 decimal places

Project NPV

A

B

C

d-2. Which projects have positive NPV’s?

• Project A
• Project B
• Project C
• Project A and Project B
• Project B and Project C
• Project A and Project C
• Project A, B, and C
• None

e. “Payback gives too much weight to cash flows that occur after the cutoff date.” True or False?

True

False

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