Roxxon Co. wants to know how long it will take project Alpha to pay back its orginal investment. Project Alpha's expected net cash flows are shown as follows:
Year 0 = -$600,000
Year 1 = 325,000
Year 2 = 375,000
Year 3 = 450,000
The CFO wants to know project Alpha's payback period. In order to include the time value of money, we want to know the project's discounted payback period.
Assuming that annual cash flows are received evenly throughout the year and the project's WACC is 10% what is the:
Regular payback period?
Discounted payback period?
Is the regular payback method or the discounted payback period ethod better when evaluating project Alpha?