Consider the following projects:Cash Flows ($)Project C0 C1 C02 C3 C4

QUESTION

Consider the following projects:Cash Flows ($)Project C0 C1 C02 C3 C4 C5A -1,000 +1,000 0 0 0 0B -2,000 +1,000 +1,000 +4,000 +1,000 +1,000C -3,000 +1,000 +1,000 0 +1,000 +1,000a.If the opportunity cost of capital is 10 percent, which projects have a positive NPV?b.Calculate the payback period for ea
a. A. NPV = -1,000 1,000/1.1 = -90.91 B. NPV = -2,000 1,000/1.1 1,000/1.1^2 4000/1.1^3 1000/1.1^4 1000/1.1^5 = 4044.73 C. NPV = -3000 1000/1.1 1000/1.1^2 1000/1.1^4 1000/1.1^5 = 39.47 Answer: B and C have positive NPVs. b. A. Payback period = 1 year. B. Payback period = 2 years. C. Payback period = 4 years. c. Answer is A and B. d. A. Discounted payback period Investment is never

recovered. B. 2000 1000/1.1 1000/1.1^2 = 264.46. 264.46/(4000/1.1^3) = 0.09. Discounted payback period = 2.09 years C. 3000 1000/1.1 1000/1.1^2 1000/1.1^4 =581.45. 581.45/(1000/1.1^5) = 0.94 Discounted payback period = 4.94 years e. Answer is B.

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