Drop-down arrow options:

1. More or Less?

2. $194,329, $206,474, $218,620, or $242,911?

What information does the payback period method provide? The payback period method indicates the number of years it is expected to take for a project to recover its initial investment based on the operating cash flows that the project is expected to generate. Criticisms of the conventional model resulted in its evolution and improvement to incorporate the effects of the time value of money. This produced the discounted payback method. Both the conventional and discounted payback methods still exhibit an important deficiency that can result in faulty project rankings, but both methods can also provide important information about an individual project's liquidity and risk. Cash flows expected in the distant future are generally risky than cash flows expected to be received in the near-term cash flows. This means that the payback period can serve as an indicator of a project's riskiness. 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. If the project's WACC is 9.00%, the project's NPV is (rounded to the nearest whole dollar). 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 discounted payback period does not take into effect the time value of money effects of a project's cash flows. The payback period does not take into account the cash flows produced over a project's entire life