All parts are under one question therefore per your policy all can be answered.7. The NPV and payback periodWhat information does the payback period provide?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. YearCash FlowYear 1$375,000Year 2$425,000Year 3$500,000Year 4$400,000 A. If the project’s weighted average cost of capital (WACC) is 9%, the project’s NPV (rounded to the nearest dollar) is: $353,334 $305,152 $273,031 $321,213 B. 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. 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.

The payback period is the amount of time taken to recover the cost of initial or overall…

Answered: The NPV and payback period What…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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All parts are under one question therefore per your policy all can be answered.

7. The NPV and payback period

What information does the payback period provide?

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.

Year	Cash Flow
Year 1	$375,000
Year 2	$425,000
Year 3	$500,000
Year 4	$400,000

A. If the project’s weighted average cost of capital (WACC) is 9%, the project’s NPV (rounded to the nearest dollar) is:

$353,334

$305,152

$273,031

$321,213

B. 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.

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.

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