ter 11 Assignment mpts 10 The NPV and payback period Keep th

ter 11 Assignment mpts: 10 The NPV and payback period Keep the Highest: 10/20 Aa Aa What information does the payback period provide uppose Omni Consumer Products\'s CFO is evaluating a project with the following cash inflows. She does not know the projedt\'s initial cost; however, she does know that the project\'s regular payback period is 2.5 years If the project\'s weighted average cost of capital (WACC) is 796, what is its NPV? Year Cash FI ear 1 $325,000 Year 2 $400,000 Year 3 $475,000 Year 4 $475,000 O $440,731 O $528,877 O $374,621 $484,804 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 project\'s 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. esc BRE 2 3 4 6

Solution

1.
According to payback, Initial investment=325000+400000+475000*0.5=962500
NPV=-962500+325000/1.07+400000/1.07^2+475000/1.07^3+475000/1.07^4=440730.5263
Option A
2.
The discounted payback period does not take the project\'s entire life into account