If a project with conventional cash flows has a payback period less than the projects We can you definitively state the algebraic sign of the NPV? Why or why not? if you know that the discounted payback period is less than the project's life, what can you say about the NPV? Explain

Payback Period: It is the particular time period or a particular point of time to require for an investment to generate the sufficient cash flows to recover its initial cost back. The general decision rule for the payback back period for project analysis is; if the project has generated the cash flows before the cut-off period, then it will be accept otherwise it should be rejected ( If the project will take the longer time period to recover the initial cost of the project, then it should be rejected).

Net Present Value: The Net Present Value (NPV) is the difference amount between the Present Value of future cash flows and the Initial investment. Suppose, if the project has got the positive cash flows or else the project’s present value of future cash flows will be greater than the initial investment, then the firm should proceed or accept the project. Or else, if the project has got the negative cash flows that mean the project’s present value of future cash flows will be lesser than the initial investment, and then the project should be rejected because of the negative NPV value.

Suppose, if the projects payback period is lesser than its project’s life (Payback period < Project’s life), then it means strongly that the project’s NPV is positive at a zero discount rate. In this context we cannot definitively said and it will be depends upon the project’s discount rate. If the project’s discount rate is greater than the zero and its payback period is lesser than its life, then the Project’s NPV may be positive, zero (or) negative. Therefore, the project’s discount rate may be lesser than, or equal, or greater than the IRR of the project.

If the project’s discounted payback period is lesser than its project’s life, then that project’s Net Present Value (NPV) should be positive. The project’s discounted payback period is the effective period (or) relevant at the projects discounted rate.