Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –6,200 2,200 2,200 2,900 0 B –1,500 0 1,000 3,200 4,200 C –3,800 2,200 1,300 1,700 1,200 a. What is the payback period on each of the above...

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Finance

Consider the following information:
Cash Flows ($)
Project C₀ C₁ C₂ C₃ C₄
A –6,200 2,200 2,200 2,900 0
B –1,500 0 1,000 3,200 4,200
C –3,800 2,200 1,300 1,700 1,200
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 A, Project B, and Project C
None
Project A and Project C
Project B and Project C
Project A
Project C
Project B
Project A and Project B
c. If you use a cutoff period of three years,which projects would you accept?
Project A
Project B
Project A and Project C
Project A, Project B, and Project C
Project A and Project B
Project C
Project B and Project C
d. If the opportunity cost of capital is 12%,which projects have positive NPVs?
Project A and Project B
Project A and Project C
Project A
Project B
Project A, Project B, and Project C
Project C
Project B and Project C
e. “If a firm uses a single cutoff period forall projects, it is likely to accept too many short-livedprojects.” True or false?
True
False
f-1. If the firm uses the discounted-paybackrule, will it accept any negative-NPV projects?
Yes
No
f-2. Will it turn down positive-NPVprojects?
Yes
No

Answer & Explanation Solved by verified expert

4.0 Ratings (574 Votes)

a Project Payback Period A 262 Years B 216 Years C 218 Years Explanation Payback Period A BC Where A Last period with a negative cumulative cash flow B Absolute value of cumulative cash flow at the end of the period A C Total cash flow during the period after A Project A Project B Project C Year Cash Flow CUM Cash Flow Cash Flow CUM Cash Flow Cash Flow CUM Cash Flow 0 6200 6200 1500 See Answer

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Consider the following information:Cash Flows ($)ProjectC0C1C2C3C4A–6,2002,2002,2002,9000B–1,50001,0003,2004,200C–3,8002,2001,3001,7001,200a. What is the payback period on each of theabove projects? (Round your answers to 2 decimalplaces.)ProjectPayback PeriodAyear(s)Byear(s)Cyear(s)b. Given that you wish to use the payback rulewith a cutoff period of two years, which projects would youaccept?Project A, Project B, and Project CNoneProject A and Project CProject B and Project CProject AProject CProject BProject A and Project Bc. If you use a cutoff period of three years,which projects would you accept?Project AProject BProject A and Project CProject A, Project B, and Project CProject A and Project BProject CProject B and Project Cd. If the opportunity cost of capital is 12%,which projects have positive NPVs?Project A and Project BProject A and Project CProject AProject BProject A, Project B, and Project CProject CProject B and Project Ce. “If a firm uses a single cutoff period forall projects, it is likely to accept too many short-livedprojects.” True or false?TrueFalsef-1. If the firm uses the discounted-paybackrule, will it accept any negative-NPV projects?YesNof-2. Will it turn down positive-NPVprojects?YesNo

	Cash Flows ($)
Project	C₀	C₁	C₂	C₃	C₄
A	–6,200	2,200	2,200	2,900	0
B	–1,500	0	1,000	3,200	4,200
C	–3,800	2,200	1,300	1,700	1,200

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