Here are the expected cash flows for three projects:
Cash Flows (dollars)ProjectYear:0 1 2 3 4 A −6,200 +1,300 +1,300 +3,600 0 B −2,200 0 +2,200 +2,600 +3,600 C −6,200 +1,300 +1,300 +3,600 +5,600
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 10%, calculate the NPV for projects A, B, and C. (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?