Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

7. The NPV and payback period What information does the payback period provide? Suppose Omni Consumer Productss CFO is evaluating a project with the following

7. The NPV and payback period

What information does the payback period provide?

Suppose Omni Consumer Productss 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 $400,000
Year 3 $475,000
Year 4 $475,000

If the projects weighted average cost of capital (WACC) is 9%, what is its NPV?

$373,562

$336,206

$317,528

$429,596

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 does not take the time value of money into account.

The discounted payback period is calculated using net income instead of cash flows.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: E. Thomas Garman, Raymond E. Forgue, Jonathan Fox

14th Edition

0357901495, 9780357901496

More Books

Students also viewed these Finance questions