1. Suppose Acme Manufacturing Corporations CFO is evaluating a project with the following cash inflows. She does not know the projects initial cost; however, she does know that the projects regular payback period is 2.5 years.

Year	Cash Flow
Year 1	$350,000
Year 2	$425,000
Year 3	$500,000
Year 4	$475,000

a. If the projects weighted average cost of capital (WACC) is 8%, what is its NPV? choose one

$470,923

$450,448

$409,498

$429,973

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 projects 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.

2. Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firms strategic goals.

a. Companies often use several methods to evaluate the projects cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply.

- Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects.

- The NPV shows how much value the company is creating for its shareholders.

- For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR.

b. True or False: Sophisticated firms use only the NPV method in capital budgeting decisions.

- True

- False