What information does the payback period provide? Suppose Omni Consumer Productss CFO is evaluating a...
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Finance
What information does the payback period provide?
Suppose Omni Consumer Productss CFO is evaluating a project with the following cash inflows. She does not know the projects initial cost; however, she does know that the projects regular payback period is 2.5 years.
| Year | Cash Flow |
|---|---|
| Year 1 | $375,000 |
| Year 2 | $400,000 |
| Year 3 | $500,000 |
| Year 4 | $425,000 |
If the projects weighted average cost of capital (WACC) is 9%, what is its NPV?
A.) $342,881
B.) $394,313
C.) $308,593
D.) $411,457
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 time value of money into account.
[] The discounted payback period does not take the projects entire life into account.
[]The discounted payback period is calculated using net income instead of cash flows.
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