**7. The NPV and Payback Period****What information does the payback period provide?**Suppose Extensive Enterprises’ 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 | $275,000 || Year 2 | $475,000 || Year 3 | $500,000 || Year 4 | $400,000 |If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV?- ○ $291,425- ○ $276,854- ○ $233,140- ○ $335,139**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 is calculated using net income instead of cash flows.- □ 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 NPV and Payback Period## What information does the payback period provide?Suppose Extensive Enterprises'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| $275,000 || Year 2| $475,000 || Year 3| $500,000 || Year 4| $400,000 |If the project's weighted average cost of capital (WACC) is 10%, what is its NPV?- ○ $291,425- ○ $276,854- ○ $233,140- ○ $335,139Which 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 is calculated using net income instead of cash flows.- □ 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.

NET PRESENT VALUE Net Present Value is the Difference between Present Value of Cash Inflow &…

Answered: 7. The NPV and payback period What…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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The NPV and payback period What information does the payback period provide? Suppose ABC Telecom Inc.’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 $350,000 Year 2 $500,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV? $280,268 $224,214 $252,241 $322,308 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 is calculated using net income instead of cash flows. The discounted payback period does not take the time value of money into account.
Kiley Electronics is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital (and even negative), in which case it will be rejected. r: 10.00% Year 0 1 2 3 Cash flows −$1,000 $550 $560 $570
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7. The NPV and payback period What information does the payback period provide? 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 $350,000 Year 2 $475,000 Year 3 $475,000 Year 4 $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? $278,324 $333,989 $292,240 $236,575 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. ☐
Zuni Computer Systems is considering a project with the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 6.67% Cash flows -$1,250 $450 $470 $490 5.99% 5.01% 5.50% 0 6.18% 1 2 3
Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: 9%
A firm evaluates all of its projects by applying the IRR rule. Cash Flow Year 0 1 2 3 147,000 69,000 70,000 54,000 What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return % If the required return is 16 percent, should the firm accept the project?
Suzanne's Cleaners is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 4 5 Cash flows -$1,100 $300 $310 $320 $330 $340 2.85 years 3.16 years 3.52 years 2.31 years 2.56 years
Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. Training WACC: 12.00% Year 0 1 2 3 Cash flows - $1,000 $540 $540 $540
Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.
A firm wants to start a project. A team of financial analysts estimated the following cash flows year cash flow 0 -$100,000 1 55,000 2 43,000 3 45,000 Based on your calcification of the pay back period and if the cut off point is 2 years, the project should Group of answer choices Undertake the project Can not decide because we do not have enough information not undertake the project in the short run but undertake the project in the long run Not undertake the project
Talent Inc. is considering a project that has the following cash flow and WACC data.WACC: 7%Year 0 1 2 3Cash flows -$1,600 $500 $600 $700 (1) What is the project's NPV?(2) What is the project's IRR?(3) What is the project's Payback Period?(4) What is the project's Discounted Payback Period?

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