Please answer all questions 11. The NPV and payback periodAa AaWhat information does the payback period provide?A project's payback period (PB) indicates the number of years required for a project to recover its initial investmentusing its operating cash flows. As the theoretical soundness of the conventional (undiscounted) PB technique wascriticized, the model was modified to incorporate the time value of money-adjusted operating cash flows to createthe discounted payback method. While both payback models continue to reflect faulty ranking criteria, they doprovide important (useful) information regarding a project's liquidity and riskiness.In general, cash flows expected in the distant future arerisky than cash flows received in the near-term-morewhich suggests that the payback period can also serve as an indicator of project risk.Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your bosshas asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you doknow the project's regular, or conventional, payback period is 2.50 years.If the project's ~WACC~ is 7%, the project's NPVYearCash Flow(rounded to the nearest dollar) is:Year 1$350,000$375,173Year 2$425,000$416,859Year 3$475,000$479,388Year 4$450,000$333,487Which of the following statements indicate a disadvantage of using the regular payback period (not the discountedpayback period) for capital budgeting decisions? Check all that apply.The payback period does not take the project's entire life into account.The payback period is calculated using net income instead of cash flows.The payback period does not take the time value of money into account.

Given Information: Payback Period : 2.50 Years WACC :7 % Years Cash Flows (in $) 1 350,000 2…

Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's ~WACC~ is 7%, the project's NPV Year Cash Flow (rounded to the nearest dollar) is: Year 1 $350,000 O $375,173 O $416,859 O $479,388 O $333,487 Year 2 $425,000 Year 3 $475,000 Year 4 $450,000 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. O The payback period does not take the project's entire life into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the time value of money into account. O00

Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's ~WACC~ is 7%, the project's NPV Year Cash Flow (rounded to the nearest dollar) is: Year 1 $350,000 O $375,173 O $416,859 O $479,388 O $333,487 Year 2 $425,000 Year 3 $475,000 Year 4 $450,000 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. O The payback period does not take the project's entire life into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the time value of money into account. O00

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 37E

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