Blue Hamster Manufacturing Inc. 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 CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year 1 Year 2 Year 3 Year 0 Expected cash flow -$4,000,000 $1,600,000 $3,400,000 $1,400,000 Cumulative cash flow 2$ 2$ 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. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to the nearest two decimal places. For full credit, complete the entire table. (Note: If your answer is negative use a minus sign.) Year 0 Year 1 Year 2 Year 3 Cash flow -$4,000,000 $1,600,000 $1,400,000 $3,400,000 Discounted cash flow Cumulative discounted cash flow 2$ 2$ 2$ 2$ Discounted payback period: years Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? The regular payback period The discounted payback period One theoretical disadvantage of both payback methods-compared to the net present value method-is that they fail to consider the value of the cash flows beyond the point in time equal to the payback period. How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? $4,112,509 $2,638,144 $1,142,817 $1,607,836 One of the most important financial management activities that a firm undertakes is its evaluation and allocation of investment funds to support its future survival and growth. These activities may be motivated by the desire to expand the firm's revenues, reduce its costs, or satisfy its mandatory or voluntary legal, health, and safety requirements. They may have, more or less, multiyear effects on the organization and may or may not be considered as capital budgeting activities. Capital budgeting is the process of planning and controlling investments in assets that are expected to produce cash flows for more than one year. This statement is: True False The capital budgeting process in a company involves evaluation of cash flows, risk analysis, correlation with the portfolio of projects in the company etc. To make this process more streamlined, firms identify whether the projects qualify as a capital budgeting project or not and generally analyze them in different vertical categories. Which of the following are examples of a capital budgeting project? Check all that apply. Collins Construction Co.'s acquisition of a new parcel of real estate. Florence Fashion Footwear Inc.'s financing of its monthly average amount of accounts receivable. Fresno Furniture Manufacturing Inc.'s replacement of an existing piece of equipment. For which of the following reasons are capital budgeting decisions important to a business organization? Check all that apply. Capital investments are easily and quickly reversed. Capital investments affect the firm's long-term performance and profitability. Capital investments tend to be expensive