Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,200 2,200 0 0 0 0 B −4,400 2,200 2,200 5,200 2,200 2,200 C −5,500 2,200 2,200 0 2,200 2,200 If the opportunity cost of capital is 10%, which project(s) have a positive NPV? Calculate the payback period for each project. Which project(s) would a firm using the payback rule accept if the cutoff period is three years?
Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,200 2,200 0 0 0 0 B −4,400 2,200 2,200 5,200 2,200 2,200 C −5,500 2,200 2,200 0 2,200 2,200 If the opportunity cost of capital is 10%, which project(s) have a positive NPV? Calculate the payback period for each project. Which project(s) would a firm using the payback rule accept if the cutoff period is three years?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Consider the following projects:
Cash Flows ($) | ||||||
Project | C0 | C1 | C2 | C3 | C4 | C5 |
A | −2,200 | 2,200 | 0 | 0 | 0 | 0 |
B | −4,400 | 2,200 | 2,200 | 5,200 | 2,200 | 2,200 |
C | −5,500 | 2,200 | 2,200 | 0 | 2,200 | 2,200 |
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If the
opportunity cost of capital is 10%, which project(s) have a positiveNPV ? -
Calculate the payback period for each project.
-
Which project(s) would a firm using the payback rule accept if the cutoff period is three years?
-
Calculate the discounted payback period for each project.
-
Which project(s) would a firm using the discounted payback rule accept if the cutoff period is three years?
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