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Here are the expected cash flows for three projects: \table[[, Cash Flows (dollars)], [Project, Year 0, Year 1, Year 2, Year 3, Year 4], [A, -5,500, +1,125, +1,125, +3,250,0],[B, -1,500, 0, +1,500, +2,250, +3,250 Here are the expected cash flows for three projects: د Cash Flows (dollars) Project Year 0 Year 1 Year 2 Year 3 Year 4 A -5,500 +1,125 +1,125 +3,250 0 B -1,500 0 +1,500 +2,250 +3,250 с -5,500 +1,125 +1,125 +3,250 +5,250 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project A 3 Years Project B Project C 2 Years 3 Years Project B Projects A, B, and C Project B and Project C False

Here are the expected cash flows for three projects: \table[[, Cash Flows (dollars)], [Project, Year 0, Year 1, Year 2, Year 3, Year 4], [A, -5,500, +1,125, +1,125, +3,250,0],[B, -1,500, 0, +1,500, +2,250, +3,250 Here are the expected cash flows for three projects: د Cash Flows (dollars) Project Year 0 Year 1 Year 2 Year 3 Year 4 A -5,500 +1,125 +1,125 +3,250 0 B -1,500 0 +1,500 +2,250 +3,250 с -5,500 +1,125 +1,125 +3,250 +5,250 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project A 3 Years Project B Project C 2 Years 3 Years Project B Projects A, B, and C Project B and Project C False

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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Here are the expected cash flows for three projects: \table[[, Cash Flows (dollars)], [Project, Year 0, Year 1, Year 2, Year 3, Year 4], [A, -5,500, +1,125, +1,125, +3,250,0],[B, -1,500, 0, +1,500, +2,250, +3,250 Here are the expected cash flows for three projects: Cash Flows (dollars) Project Year 0 A -5,500 Year 1 +1,125 Year 2 +1,125 Year 3 +3,250 Year 4 0 B -1,500 0 с -5,500 +1,125 +1,500 +1,125 +2,250 +3,250 +3,250 +5,250 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project A Project B Project C 2 Years 3 Years Project B 3 Years Projects A, B, and C Project B and Project C False
Transcribed Image Text:Here are the expected cash flows for three projects: \table[[, Cash Flows (dollars)], [Project, Year 0, Year 1, Year 2, Year 3, Year 4], [A, -5,500, +1,125, +1,125, +3,250,0],[B, -1,500, 0, +1,500, +2,250, +3,250 Here are the expected cash flows for three projects: Cash Flows (dollars) Project Year 0 A -5,500 Year 1 +1,125 Year 2 +1,125 Year 3 +3,250 Year 4 0 B -1,500 0 с -5,500 +1,125 +1,500 +1,125 +2,250 +3,250 +3,250 +5,250 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? Project A Project B Project C 2 Years 3 Years Project B 3 Years Projects A, B, and C Project B and Project C False
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