Question
1. Payback Period and Net Present Value If a project with conventional cash flows has a payback period less than the projects life, can you
1. Payback Period and Net Present Value If a project with conventional cash flows has a payback period less than the projects life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the projects life, what can you say about the NPV? Explain.
2. Net Present Value Suppose a project has conventional cash flows and a positive NPV. What do you know about its payback? Its discounted payback? Its profitability index? Its IRR? Explain.
3. Payback Period Concerning payback:
a. Describe how the payback period is calculated and describe the information this measure provides about a sequence of cash flows. What is the payback criterion decision rule?
b. What are the problems associated with using the payback period as a means of evaluating cash flows?
c. What are the advantages of using the payback period to evaluate cash flows? Are there any circumstances under which using payback might be appropriate? Explain
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