12. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Blue Hamster Manufacturing is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Sigma's expected future cash flows. To answer this question, Blue Hamster's Cho has asked that you compute the project's payback penod using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table by computing the projects conventional payback period. (Hint: For full credit, complete the entire table. Round the conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year 1 Year o Year 2 Year 3 $5,000,000 $2,000,000 $4,250,000 $1,750,000 Expected cash flow $ Cumulative cash flow Conventional payback period: years The conventional payback period ignores the time value of money, and this concerns Blue Hamster's CFO. He has now asked you to compute Sigma's discounted payback period, assuming the company has a 7% cost of capital