7. The NPV and payback period

What information does the payback period provide?

Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the projects net present value (NPV). You dont know the projects initial cost, but you do know the projects regular, or conventional, payback period is 2.50 years.

Year	Cash Flow
Year 1	$325,000
Year 2	$475,000
Year 3	$450,000
Year 4	$475,000

If the projects weighted average cost of capital (WACC) is 7%, the projects NPV (rounded to the nearest dollar) is:

$444,498

$486,831

$423,331

$338,665