payback period and NPV

11. The NPV and payback period What information does the payback period provide? Payback perlod essentially provides the number of years it would take for a project to recover the initial investment from its operating cash flows. As the model was criticized, the model evolved incorporating time value of money to create the discounted payback method. The models still reflected faulty ranking criteria but they provided important information about liquidity and risk. Cash flows expected in the distant future are more sky than cash flows received in the near-term-which suggests that the payback perlod can also serve as an indicator of project risk. Suppose Praxis Corporation'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 Year 2 Year 3 $350,000 500,000 475,000 400,000 Year 4 If the project's weighted average cost of capital (WACC) Is 10%, what is its NPV? O $328,782 O $273,985 O $260,286 $315,083 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 time value of money into account. 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