please answer completely and correctly all questions thanks 733 MAA051 C Search

Question

please answer completely and correctly all questions thanks

733 MAA051 C Search Capital Budgeting: Decision Criteria Graded Assignment Due Thursday 11.09.17 at 09:00 PM Attempts Keep the Highest: 14 14. 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 folowing 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. If the project's ~wACC-is 10%, the project's NPV (rounded to the nearest dollar) is Year Cash low Year 1 $275,000 Year 2 $400,000 Year 3 $475,000 Year 4 $450,000 O $398,771 O $315,694 O $332,309 O $282,463 which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital bidgeting decisionc? Check all hat apply The payback period is calculated using net ricome instead of cash flows. The payback period does not take the project's entire life into account. The payback period does not take the time value of money into account

Explanation / Answer

Project's conventional payback period = 2.50 years.It means that project's initial cost will be recovered in 2.5 years. Hence ,Project's Initial cost = Cash Inflow for Year 1 + Cash Inflow for Year 2 + (50% * Cash inflow for Year 3) Project's Initial Cost = $275000 + $400000+$237500 = $9,12,500 Calculation of Project's NPV if project's WACC is 10% Year Cash flow Discount Factor @ 10% Present Value 0 -$912,500 1 -$912,500 1 $275,000 0.909091 $250,000 2 $400,000 0.826446 $330,579 3 $475,000 0.751315 $356,875 4 $450,000 0.683013 $307,356 NPV $332,309 Project's NPV = $3.32,309 The disadvantage of of using regular payback period is as under, The payback period does not take the time value of money into account.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.