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Evaluating projects: Payback period, WACC, NPV, cash flows

XYZ is evaluating a project with the following annual net cash flows:

0 year=-$600
1 year=$50
2 year=$100
3 year=$150
4 year=$350
5 year=$100

1) XYZ is a small company with limited resources, its managers are concerned about how capital will be tied up in projects. What is the project's payback period? Assume XYZ's cash flows are spaced evenly throughout the year

2) Some of XYZ's managers use a general guideline when evaluating projects: accept projects that pay back their investment in less than four years. If you use this payback rule to evaluate the project described above, should XYZ accept the project?

3) If the project's WACC is 11.3%, what is its NPV?

4) If XYZ managers decide to accept the project based on its impact on shareholder value, should they accept the project?

5) You are evaluating the project with cash flows as shown below. Your boss has asked you to calculate the project's NPV. You don't know the project's initial cost, but you have been informed that the project's payback period is 3.5 years.

0 years=

If the project's WACC is 11.3%, what is its NPV?

Solution Summary

The expert provides an evaluation for projects. The payback periods, WACC, NPV and cash flows are examined.