7. 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 Year 1 Year 2 Year 3 Year 4 Cash Flow $275,000 $475,000 $500,000 $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? $291,425 O $276,854 O $233,140 O $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.

7. 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 Year 1 Year 2 Year 3 Year 4 Cash Flow $275,000 $475,000 $500,000 $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? $291,425 O $276,854 O $233,140 O $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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 19P: The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4...

See similar textbooks

Similar questions

Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
7. The NPV and payback period What information does the payback period provide? Suppose Omni Consumer Products'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 $375,000 Year 2 $500,000 Year 3 $400,000 Year 4 $425,000 If the project's weighted average cost of capital (WACC) is 9%, what is its NPV? O $239,865 O $299,831 O $344,806 O $269,848 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that аpply. O The discounted payback period is calculated using net income instead of cash flows. O The discounted payback period does not take the time value of money into account. O The discounted payback period does not take the project's entire life into account.
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 Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 $450,000 $475,000 $400,000 If the project's weighted average cost of capital (WACC) is 7%, what is its NPV? $300,440 $394,328 $413,105 $375,550 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 project's entire life into account. The discounted payback period does not take the time value of money into account.
7. 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.
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 $375,000 Year 2 $475,000 Year 3 $450,000 Year 4 $400,000 If the project's weighted average cost of capital (WACC) is 7%, what is its NPV? O $362,843 $326,559 O $417,269 O $308,417
What information does the payback period provide? Suppose Omni Consumer Products'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 Year 1 Cash Flow $375,000 Year 2 $450,000 Year 3 $400,000 Year 4 $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? $261,541 $313,849 $287,695 $222,310 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. ㅁㅁ The discounted payback period is calculated using net income instead of cash flows. 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.
What information does the payback period provide? Suppose Omni Consumer Products’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 $375,000 Year 2 $400,000 Year 3 $400,000 Year 4 $500,000 If the project’s weighted average cost of capital (WACC) is 7%, what is its NPV? $389,529 $432,810 $454,451 $411,170 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.
Suppose Omni Consumer Products'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. If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? Cash Flow Year O $327,934 Year 1 $325,000 O $295,141 O $344,331 O $360,727 Year 2 $425,000 Year 3 $425,000 $475,000 Year 4 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
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 project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $375,000 Year 2 $475,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $345,386 $328,117 $414,463 $362,655
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 project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $300,000 Year 2 $450,000 Year 3 $500,000 Year 4 $500,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $470,812 $449,412 $513,613 $428,011 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 does not take the time value of money into account. The payback period is calculated using net…