7. The NPV and payback period What information does the payback period provide? Suppose ABC Telecom...

7. The NPV and payback period

What information does the payback period provide?

Suppose ABC Telecom Inc.’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.

Year	Cash Flow
Year 1	$375,000
Year 2	$450,000
Year 3	$425,000
Year 4	$475,000

If the project’s weighted average cost of capital (WACC) is 7%, what is its NPV?

$332,254

$353,019

$415,317

$394,551

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 does not take the project’s entire life into account.

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.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

PV FACTOR AT 7% = 1/(1+0.07)^n

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

7. The NPV and payback period What information does the payback period provide? Suppose you are...

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 $325,000 Year 2 $425,000 Year 3 $500,000 Year 4 $425,000 If...

7. The NPV and payback period What information does the payback period provide? Suppose you are...

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 $275,000 Year 2 $500,000 Year 3 $450,000 Year 4 $450,000 If...

7. The NPV and payback period What information does the payback period provide? Suppose Omni Consumer...

7. The NPV and payback period What information does the payback period provide? 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. Year Cash Flow Year 1 $275,000 Year 2 $450,000 Year 3 $475,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 8%, what is its NPV? $331,563 $349,014...

5. The NPV and payback period What information does the payback period provide? Suppose you are...

5. 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 $275,000 Year 2 $450,000 Year 3 $425,000 Year 4 $450,000 If...

5. The NPV and payback period Part A What information does the payback period provide? Suppose...

5. The NPV and payback period Part A What information does the payback period provide? Suppose Acme Manufacturing corp CFO is evaluating a project w the following cash Inflows. She does not know the project's initial cost; however he does know that the projects regular payback period is 2.5 years. Year Cash flow 1. $350,000 2. $400,000 3. $400,000 4. $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? answer options: $326,990; $299,741;...

8. The NPV and payback period What information does the payback period provide? Suppose you are...

8. 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 $500,000 Year 3 $500,000 Year 4 $450,000 If...

The NPV and payback period What information does the payback period provide? Suppose you are evaluating...

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 $275,000 Year 2 $475,000 Year 3 $400,000 Year 4 $475,000 If the...

5. The NPV and payback period What information does the payback period provide? Suppose Omni Consumer...

5. The NPV and payback period What information does the payback period provide? 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. Year Cash Flow Year 1 $350,000 Year 2 $500,000 Year 3 $500,000 Year 4 $450,000 If the project’s weighted average cost of capital (WACC) is 7%, what is its NPV? $415,274 $394,510...

What information does the payback period provide? Suppose you are evaluating a project with the expected...

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 $500,000 Year 3 $400,000 Year 4 $500,000 If the project’s weighted average cost of...

What information does the payback period provide? Suppose you are evaluating a project with the expected...

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 $325,000 Year 2 $400,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of...

Subjects