Question

Ch 10 Assignment- The Basics of Capital Budgeting Evaluating Cash Flows e Back to Assignment Attempts: Average:/5 Attention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more. 9. The NPV and payback period Aa Aa What information does the payback period provide? Payback period essentially provides the number of years it would take for a project to recover the initial investment from its operating cash flows. As the model was criticized, the model evolved incorporating time value of money to create the discounted payback method. The models still reflected faulty ranking citeria but they provided important information about liquidity and risk cash flows expected in the distant future are suggests that the payback period can also serve as an indicator of project risk. risky than cash flows received in the near-term-which 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 If the project's weighted average cost of capital (WACC) is8%, what is its NPV? Year Cash Flo Year 1 $325,000 Year 2 $500,000 Year 3 $500,000 Year 4 $500,000 $502,831 $460,929 O $356,172 $419,026 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 time value of money into account The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the project's entire life into account. Save & C O Type here to search

Answer 1