Suppose YOU are evaluating a project with the cash inflows shown In the followin

Question

Suppose YOU are evaluating a project with the cash inflows shown In the following table Your Doss has asked you to calculate the project's NPV. You don't know the project's met cost, but you do know the project's regular payback period is 2.5 years. If the project's WACC is 10%, the project's NPV is which Of the following? $327, 666 $268, 090 $238, 302 $797, 878 Which of the following statements indicate d disadvantage of using hire regular payback period (not the discounted payback period for capital budgeting decisions Check ail that apply. The payback period does not take the tune values of money into account The payback period is calculated using net income Instead of cash flows. The payback period Cues not take the project entire life into account.

Explanation / Answer

Since pay back period is 2.5 years form thsi we can find the initial cost of investment is
=275000+500000+475000/2
= 1,012,500
NPV of the project=-initial inv+ present value of the cash inflow
=-1012500+(275000/1.1^1)+(500000/1.1^2)+(475000/1.1^3)+(425000/1.1^4)
=$297,878

Option 1 and option 3 are correct

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