Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 2.5 years.

Year

Cash Flow

(Dollars)

Year 1 $300,000
Year 2 450,000
Year 3 400,000
Year 4 425,000

If the projects weighted average cost of capital (WACC) is 8%, the projects NPV (rounded to the nearest dollar) is:

$412,201

$291,976

$377,851

$343,501

Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply.

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

The payback period does not take the projects entire life into account.

The payback period does not take the time value of money into account.

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

The Economics Of Money Banking And Finance

Authors: Keith Bain, Peter Howells

1st Edition

0582278007, 9780582278004

More Books

Students also viewed these Finance questions