The NPV and payback period Suppose you are evaluating a project with the cash inflows...
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The NPV and payback period
Suppose you are evaluating a project with the 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 2.50 years.
The project's annual cash flows are:
| Year | Cash Flow |
|---|---|
| Year 1 | $400,000 |
| Year 2 | 600,000 |
| Year 3 | 500,000 |
| Year 4 | 475,000 |
If the projects desired rate of return is 8.00%, the projects NPVrounded to the nearest whole dollaris .
Which of the following statements indicates a disadvantage of using the regular, or conventional, payback period for capital budgeting decisions? Check all that apply.
The payback period does not take into account the time value of money effects of a projects cash flows.
The payback period is calculated using net income instead of cash flows.
The payback period does not take into account the cash flows produced over a projects entire life.
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