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# Calculation of Pay back period, Net present value

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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 percent, 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 is three years?

#### Solution Preview

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 percent, 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 is three ...

#### Solution Summary

The answer contains the computation of pay back period and Net present value

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