Consider the following information:
| Cash Flows ($) |
| Project | C0 | C1 | C2 | C3 | C4 |
| A | –6,000 | 2,000 | 2,000 | 2,700 | 0 |
| B | –1,300 | 0 | 1,000 | 3,000 | 4,000 |
| C | –4,000 | 1,000 | 2,600 | 1,500 | 1,000 |
|
a. What is the payback period on each of theabove projects? (Round your answers to 2 decimalplaces.)
| Project | Payback Period |
| A | year(s) |
| B | year(s) |
| C | year(s) |
|
b. Given that you wish to use the payback rulewith a cutoff period of two years, which projects would youaccept?
| Project C |
| Project A and Project C |
| Project A, Project B, and Project C |
| Project A |
| Project A and Project B |
| Project B and Project C |
| None |
| Project B |
c. If you use a cutoff period of three years,which projects would you accept?
| Project B and Project C |
| Project A |
| Project C |
| Project A, Project B, and Project C |
| Project A and Project C |
| Project B |
| Project A and Project B |
d. If the opportunity cost of capital is 10%,which projects have positive NPVs?
| Project B |
| Project B and Project C |
| Project A and Project C |
| Project C |
| Project A, Project B, and Project C |
| Project A |
| Project A and Project B |
e. “If a firm uses a single cutoff period forall projects, it is likely to accept too many short-livedprojects.” True or false?
f-1. If the firm uses the discounted-paybackrule, will it accept any negative-NPV projects?
f-2. Will it turn down positive-NPVprojects?
