Compute the payback for each project

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Reference no: EM13870797

Compute the following FCF forecasts (in $s)

Year Project A Project B Project C

0 (5,000) (5,000) (5,000)

1 2,000 2,000 0

2 2,000 2,000 4,000

3 2,000 2,000 2,000

4 2,000

5 2,000

6 2,000

1. Compute the payback for each project.

2. Compare the payback for Project A with the payback of Project B.

3. Compare the payback for Project B with the payback of Project C.

4. Compare the payback for Project A with the payback of Project C.

5. According to the payback decision rule, which project(s) is acceptable? Why?

6. What disadvantages of using payback as a capital budgeting metric do the above comparisons illustrate?

Reference no: EM13870797

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