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- 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 Year 1 Year 2 Year 3 Year 4 If the project's weighted average cost of capital (WACC) is 10%, the project's NPV (rounded to the nearest dollar) is: O O Cash Flow $325,000 $475,000 $425,000 $475,000 0 0 $351,183 $367,146 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. $319,257 $303,294 The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account. The payback period does not take the…A project's present value can be decreased by, I. decreasing the required discount rate (required return) II. decreasing the amount of the final cash inflow II. increasing the project's initial cost at time zero IV. moving each of the cash inflows to a more distant time period V. increasing the value of each of the project's discounted cash inflowsWhich one of the following will decrease the net present value of a project? Group of answer choices Moving each cash inflow forward one time period, such as from Year 3 to Year 2 Increasing the value of each of the project's discounted cash inflows Decreasing the required discount rate Increasing the project's initial cost at Time 0 Increasing the amount of the final cash inflow
- 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 $475,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $345,386 $328,117 $414,463 $362,655You are considering a project that has the following cash flow data. What is the project's payback? 3 550 Year O Cash Flow-900 2.62 1.96 2.18 1.53 2.40 1 350 2 4507. 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 $300,000 Year 2 $450,000 Year 3 $500,000 Year 4 $500,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $470,812 $449,412 $513,613 $428,011 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 time value of money into account. The payback period is calculated using net…
- You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? A. The discount rate increases. B. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. C. The discount rate decreases. D. Answers B and C above. E. Answers A and B above.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 $350,000 Year 2 $500,000 Year 3 $450,000 Year 4 $425,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $312,620 $295,253 $277,885 $347,356 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 is calculated using net income instead of cash flows. The payback period does not take the project’s entire life into account.…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 $450,000 Year 3 $475,000 Year 4 $425,000 Q1. If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: a. $381,870 b. $363,686 c. $327,317 d. $309,133 Q2. 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. a. The payback period is calculated using net income instead of cash flows. b. The payback…
- Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10You are considering a project that has the following cash flow data. What is the project's payback? (Ch. 11) Year 0 1 2 3 Cash Flow -900 350 450 600 Group of answer choices 1.95 1.52 2.60 2.17 2.38You are considering two projects with the following cash flows: Project X Project Y Year 1 $7,000 $5,000 Year 2 6,000 4,000 Year 3 4,000 3,000 Year 4 1,000 6,000 Which of the following statements are true concerning these two projects? I. Both projects have the same future value at the end of year 4, given a positive rate of return. II. Project X has a higher present value than Project Y, given a positive discount rate. III. Both projects have the same future value given a zero rate of return. IV. Project Y has a higher present value than Project X, given a positive discount rate. Multiple choice options: II only I and III only II and III only II and IV only I, III, and IV only