8. 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 Cash Flow Year 1 Year 2 $275,000 $425,000 $400,000 Year 3 Year 4 $500,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? 0 $326,108 $291,781 O $411,926 $343, 272 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. 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. Attempts: Do No Harm: 12 9. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects. For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR. The NPV shows how much value the company is creating for its shareholders. True or False: Sophisticated firms use only the NPV method in capital budgeting decisions. O False O True