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

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter16: Country Risk Analysis

Section: Chapter Questions

Problem 20QA

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Calculate the cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
Calculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
The payback period is a non - discounted cash flow technique that measures: a. The time required to recover the initial investment b. The profitability of the project c. The net present value of the project d. The internal rate of return of the project
The number of years it takes to recapture a project`s initial outlay from the discounted free cash flows is called as the pay back period Select one: True False
Which of the following statements is true regarding the payback period? Multiple Choice It measures the length of time that it takes for a project to recover its initial cost from the discounted net cash inflows that it genera It measures the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates. It measures the length of time that it takes for a project to recover its initial cost from the incremental net operating income that It measures the length of time that it takes for a project to recover its initial cost from the discounted incremental net operating it generates.
1. Which of the following is not true? Group of answer choices The method in which we calculate a project’s Internal Rate of Return (IRR) is called the Discounted Cash Flow approach. The Payback period can be calculated using the discounted (present) values of future cash inflows. The Payback period calculated using this method is what's called the Discounted Payback Period. The Net Present Value is calculated using the present value of the investments and future cash inflows. None of the above (all of the above are correct)
9. Which of the following statements concerning the payback period, is not true? The payback period is simple to calculate and understand. The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment. The payback period ignores cash flows after the payback point has been reached. It takes account of the time value of money.
Which of the following statements is true? The internal rate of return is the rate of return of an investment project over its useful life. When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return. Multiple Choice Only statement I is true. Only statement II is true. Both statements are true.
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
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 $10
To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.
The net present value (NPV) and the internal rate of return (IRR) capital budgeting methods make assumptions about the reinvestment rate of cash inflows over the life of the project. Which one of the following statements is correct with respect to this reinvestment rate of cash inflows? Select the correct response: Under both NPV and IRR the reinvestment rate is the risk-free rate of return. Under NPV and IRR the reinvestment rates are the cost of capital rate and the internal rate of return, respectively. Under NPV and IRR the reinvestment rates are the cost of capital rate and the risk-free rate of return, respectively. Under NPV and IRR the reinvestment rates are the cost of capital rate and the asset risk premium rate, respectively.