Question: Guns & Roses is evaluating a project with the following cash flows (note that the cash flow in year 0 is the projects initial investment).

  1. Guns & Roses is evaluating a project with the following cash flows (note that the cash flow in year 0 is the projects initial investment).

Cash Flows

0

($2,100,000)

1

$700,000

2

$700,000

3

$700,000

4

$700,000

5

$700,000

  1. Calculate the payback period for the project (ROUND TO 0.00)

  1. Guns & Roses has a 10% required return. Calculate the discounted payback period for the project (ROUND TO 0.00).

  1. What is the advantage of using discounted payback period (as opposed to payback period in its simple form)?

  1. If Guns & Roses has a payback period of 4 years, should it accept the project according to the payback period?

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