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Consider the following information:     Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300 2,700 0 B –700 0 600 2,300 3,300 C –5,200 3,400 1,700 800 300   a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)   b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? multiple choice 1 Project A Project B and Project C Project A and Project B Project A, Project B, and Project C Project C Project A and Project C Project B None c. If you use a cutoff period of three years, which projects would you accept? multiple choice 2 Project A, Project B, and Project C Project A Project B Project A and Project C Project C Project A and Project B Project B and Project C d. If the opportunity cost of capital is 10%, which projects have positive NPVs? multiple choice 3 Project B Project C Project A, Project B, and Project C Project B and Project C Project A and Project C Project A Project A and Project B e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false? multiple choice 4 True False f-1. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? multiple choice 5 Yes No f-2. Will it turn down any positive-NPV projects? multiple choice 6 Yes No

Consider the following information:     Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300 2,700 0 B –700 0 600 2,300 3,300 C –5,200 3,400 1,700 800 300   a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)   b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? multiple choice 1 Project A Project B and Project C Project A and Project B Project A, Project B, and Project C Project C Project A and Project C Project B None c. If you use a cutoff period of three years, which projects would you accept? multiple choice 2 Project A, Project B, and Project C Project A Project B Project A and Project C Project C Project A and Project B Project B and Project C d. If the opportunity cost of capital is 10%, which projects have positive NPVs? multiple choice 3 Project B Project C Project A, Project B, and Project C Project B and Project C Project A and Project C Project A Project A and Project B e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false? multiple choice 4 True False f-1. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? multiple choice 5 Yes No f-2. Will it turn down any positive-NPV projects? multiple choice 6 Yes No

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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Question

Consider the following information:
 

  Cash Flows ($)
Project C0 C1 C2 C3 C4
A –5,300 1,300 1,300 2,700 0
B –700 0 600 2,300 3,300
C –5,200 3,400 1,700 800 300

 


a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)

 


b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?

multiple choice 1
  • Project A
  • Project B and Project C
  • Project A and Project B
  • Project A, Project B, and Project C
  • Project C
  • Project A and Project C
  • Project B
  • None


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

multiple choice 2
  • Project A, Project B, and Project C
  • Project A
  • Project B
  • Project A and Project C
  • Project C
  • Project A and Project B
  • Project B and Project C


d. If the opportunity cost of capital is 10%, which projects have positive NPVs?

multiple choice 3
  • Project B
  • Project C
  • Project A, Project B, and Project C
  • Project B and Project C
  • Project A and Project C
  • Project A
  • Project A and Project B


e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many shortlived projects.” True or false?

multiple choice 4
  • True
  • False


f-1. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects?

multiple choice 5
  • Yes
  • No


f-2. Will it turn down any positive-NPV projects?

multiple choice 6
  • Yes
  • No

 

 
 
 
 
 
 
 
 
 
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