Question

Suppose you are evaluating a project with the 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. The project's annual cash flows are: Year Cash Flow Year 1 $300,000 Year 2 400,000 Year 3 Year 4 400,000 475,000 If the project's desired rate of return is 7.00%, the project's NPV-rounded to the nearest whole dollar-is decisions? Check all that $334,914 Which of the following statements indicate a disadvantage of using the discounted payback period for capita apply. $355,847 The discounted payback period does not take into effect the time value of money effects of a prol $376,779 lows. The discounted payback period is calculated using net income instead of cash flows. $418,643 The payback period does not take into account the cash flows produced over a project's entire life.

Answer 1

Given that payback period = 2.50 years anual received It means Cash flows in 2.5 years Initial Investment Therefore, Initial Inwestmount = 30000 + 400.oo +40000* = $900000 Now, NPV = PV of annuel Cash inflows - Initial Investment 10000 ot Yoouoo + 475000 . (1.07 (1.074 90oooo muo = 2.000 Tot 72 = $ 418643 lisadvantage of using discounted payback I period : 7 The payback period the Cash flow project's account does not take into produced over a entire life .