The NPV & Payback Method

Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to calculate the projects NPV. You dont know the projects initial cost, but you do know the projects regular payback period is 2.5 years.

Years	Cash Flow
Year 1	$375K
Year 2	$475K
Year 3	$425K
Year 4	$475K

1. If the projects WACC is 7%, the projects NPV is which of the following?

A. $329,722

B. $391,545

C. $412,153

D. $432,761

2. Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Choose all that apply.

A. The payback period does not take the projects entire life into account.

B. The payback period does not take the time value of money into account.

C. The payback period is calculated using net income instead of cash flows.