Reference no: EM132578909

Consider the following projects:

cash flow (£)

project                  C0            C1             C2             C3            C4            C5

A                     -4,000      +4,000        0             0             0         0

B                      -2,000    +1,000      +1,000      +2,000    +1,500   +1,500

C                         -1,000    +1,000     +500          0         +1,000  +1,200

Question a. If the opportunity cost of capital is 9%, which projects have a positive NPV?

Question b. Calculate the payback period for each project. Which project(s) would a firm using the payback rule accept, if the cut-off period were three years?

Question c. Calculate the internal rate of return (IRR) of project A.

Question d. If we only have £5,000 to invest, which project(s) should we select and why?