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1. Suppose you have the following investment opportunities, but only $90,000 available for investment. Which projects should you take?
|
Project |
NPV |
Investment |
|
1 |
5,000 |
10,000 |
|
2 |
5,000 |
5,000 |
|
3 |
10,000 |
90,000 |
|
4 |
15,000 |
60,000 |
|
5 |
15,000 |
75,000 |
|
6 |
3,000 |
15,000 |
2. Consider the following projects:
|
Cash Flows ($) |
||||||
|
Project |
C0 |
C1 |
C2 |
C3 |
C4 |
C5 |
|
A |
-1,000 |
+1,000 |
0 |
0 |
0 |
0 |
|
B |
-2,000 |
+1,000 |
+1,000 |
+4,000 |
+1,000 |
+1,000 |
|
C |
_3,000 |
+1,000 |
+1,000 |
0 |
+1,000 |
+1,000 |
a. If the opportunity cost of capital is 10%, which projects have a positive NPV?
b. Calculate the payback period for each project.
c. Which project(s) would a firm using the payback rule accept if the cutoff period were three years?
d. Calculate the discounted payback period for each project.
e. Which project(s) would a firm using the discounted payback rule accept if the cutoff period were three years?