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Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not knowthe project's initial cost; however, she does know that the project's regular payback period is 2.5 years.If the project's weighted average cost of capital (WACC)is 10%, what is its NPV?Cash FlowYearO $327,934Year 1$325,000O $295,141O $344,331O $360,727Year 2$425,000Year 3$425,000$475,000Year 4Which of the following statements indicate a disadvantage of using the discounted payback period for capitalbudgeting decisions? Check all that applyThe discounted payback period is calculated using net income instead of cash flows.The discounted payback period does not take the time value of money into account.The discounted payback period does not take the project's entire life into account

Question
Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know
the project's initial cost; however, she does know that the project's regular payback period is 2.5 years.
If the project's weighted average cost of capital (WACC)
is 10%, what is its NPV?
Cash Flow
Year
O $327,934
Year 1
$325,000
O $295,141
O $344,331
O $360,727
Year 2
$425,000
Year 3
$425,000
$475,000
Year 4
Which of the following statements indicate a disadvantage of using the discounted payback period for capital
budgeting decisions? Check all that apply
The discounted payback period is calculated using net income instead of cash flows.
The discounted payback period does not take the time value of money into account.
The discounted payback period does not take the project's entire life into account
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Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? Cash Flow Year O $327,934 Year 1 $325,000 O $295,141 O $344,331 O $360,727 Year 2 $425,000 Year 3 $425,000 $475,000 Year 4 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the time value of money into account. The discounted payback period does not take the project's entire life into account

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check_circleAnswer
Step 1

Part 1:

Payback Period = 2.5 years

Calculation of Initial Investment:

Initial Investment Cash Flow of Year 1Cash Flow of Year 2 (0.5x Cash Flow of Year 3)
= $325,000 $425,000+ (0.5x$425,000)
- $325, 000 $425,000+ $212,500
- $962, 500
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Initial Investment Cash Flow of Year 1Cash Flow of Year 2 (0.5x Cash Flow of Year 3) = $325,000 $425,000+ (0.5x$425,000) - $325, 000 $425,000+ $212,500 - $962, 500

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Step 2

Calculation of NPV using excel:

B
А
C
D
Year Cash Flow(PVF@ 10%)| Present Value
|-962500
325000
425000
425000
475000
Cash Flow
1
=B2*C2
|-B3*С3
=B4*C4
=B5*C5
|=B6*C6
|=SUM(D2:D6)
2 0
31
4 2
1
|=1/1.1
|=1/(1.1)^2|
|=1/(1.1)^3|
|-1/(1.1)^4
5 3
6 4
7 Net Present Value
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B А C D Year Cash Flow(PVF@ 10%)| Present Value |-962500 325000 425000 425000 475000 Cash Flow 1 =B2*C2 |-B3*С3 =B4*C4 =B5*C5 |=B6*C6 |=SUM(D2:D6) 2 0 31 4 2 1 |=1/1.1 |=1/(1.1)^2| |=1/(1.1)^3| |-1/(1.1)^4 5 3 6 4 7 Net Present Value

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Step 3

The result of above tabl...

A
B
D
Year Cash Flow (PVF@ 10%)|Present Value
Cash Flow
($962,500)
$295.455
1
0(S962,500)
S325,000 0.909090909
S425,000 0.826446281|
$425,000 0.751314801
$475,000 0.683013455
1
2
1
3
$351,240
S319,309
$324,431
$327,934
2
4
3
5
4
6
7 Net Present Value
st
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A B D Year Cash Flow (PVF@ 10%)|Present Value Cash Flow ($962,500) $295.455 1 0(S962,500) S325,000 0.909090909 S425,000 0.826446281| $425,000 0.751314801 $475,000 0.683013455 1 2 1 3 $351,240 S319,309 $324,431 $327,934 2 4 3 5 4 6 7 Net Present Value st

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