Discussion Question – CLO 1, 2, 4, 5
a.What is the payback period on each of the above projects?
b.Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why?
c.If you use a cutoff period of three years, which projects would you accept? Why?
d.If the opportunity cost of capital is 10%, which projects have positive NPVs? How do you know?
e.“If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” Is this statement true or false? How do you know? f.If the firm uses the discounted-payback rule, will it accept any negative NPV projects? Will it turn down any positive NPV projects? How do you know?