CHAP 9 - Q4

CHAP 9 - Q12

4. Net present value method Rydell Corporation is evaluating a proposed capital budgeting project that will require an initial investment of $144,000. The project is expected to generate the following net cash flows: Year 2 3 4 Cash Flow $41,200 $51,100 $46,800 $44,900 Assume the desired rate of return on a project of this type is 10%. The net present value of this project is Suppose Rydell Corporation has enough capital to fund the project, and the project is not competing for funding with other projects. Should Rydell Corporation accept or reject this project? Reject the project Accept the project 12. 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 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. The project's annual cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 450,000 500,000 300,000 If the project's desired rate of return is 9.00%, the project's NPV-rounded to the nearest whole dollar-is 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 is calculated using net income instead of cash flows. The payback period does not take into account the cash flows produced over a project's entire life. The discounted payback period does not take into effect the time value of money effects of a project's cash flows