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 $350,000 Year 2 $500,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV? $280,268 $224,214 $252,241 $322,308 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.
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 $350,000 Year 2 $500,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV? $280,268 $224,214 $252,241 $322,308 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.
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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 | $350,000 |
| Year 2 | $500,000 |
| Year 3 | $500,000 |
| Year 4 | $400,000 |
If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV?
$280,268
$224,214
$252,241
$322,308
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.
Expert Solution
Step 1
Step 1
The goal of NPV is to forecast all potential future cash inflows and outflows related to an investment, discount each one to the present, and then tally them all up.
The term "payback period" refers to the amount of years needed to recoup the initial monetary outlay.
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