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Here are the expected cash flows for 3 projects:
| Cash Flows |
| Project | Year: | 0 | 1 | 2 | 3 | 4 |
| A | | ($5,000) | $1,000 | $1,000 | $3,000 | 0 |
| B | | ($1,000) | $0 | $1,000 | $2,000 | $3,000 |
| C | | ($5,000) | $1,000 | $1,000 | $3,000 | $5,000 |
Requirements:
What is the payback period for each project?
Given that you wish to use the payback rule with a cutoff period of 2 years, which projects would you accept?
If you used a cutoff period of 3 years, which projects would you accept?
If the opportunity cost of capital is 10%, what is the NPV of each project? Round your answer to the nearest whole dollar ($).
What is the IRR of Project C? Round your answer to one decimal place
Answer & Explanation
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