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MBA,MCS,M.phil Devry University Jan-2008 - Jan-2011
MBA,MCS,M.Phil Devry University Feb-2000 - Jan-2004
Regional Manager Abercrombie & Fitch. Mar-2005 - Nov-2010
Regional Manager Abercrombie & Fitch. Jan-2005 - Jan-2008
What is the payback period on each of the following projects?
Cash Flows ($)
Project
C 0
C 1
C 2
C3
C 4
A
-5,000
+1,000
+3,000
0
B
-1,000
+2,000
C
+3,0000
+5,000
b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
c. If you use a cutoff period of three years, which projects would you accept?
d. If the opportunity cost of capital is 10 percent, which projects have positive NPVs?
e. “Payback gives too much weight to cash flows that occur after the cutoff date.”
True or false?
f. “If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?
g. If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? Will it turn down positive-NPV projects? Explain.
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