Ch 11: Assignment - The Basics of Capital Budgeting 6. The payback period The payback method helps firms establish and Identify a maximum acceptable payback period that helps in their capital budgeting decisions Consider the case of Cold Goose Metal Works Inc Cold Goose Metal Works 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 Beta's expected future cash flows to answer this question, Cold Gor's CFC 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 conwentional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer Year Year o 14,500,000 Year 1 $1,800,000 Year 2 $3,825,000 $1,575,000 Expected tash flow Cumulative cash flow Conventional payback period: S 5 Years The conventional payback period ignore the time value of money, and this concerne Cold Conse's CFO Horas now asked you to computea discounted payback period, assuming the company has a cost of capital complete the following table and perform any necessary calculation Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period towded place for Full credit complete the entire table. Note: If your answer is negative, be sure to use a minus on in your Year 0 -54,500,000 Year 1 $1.000.000 Year 2 $3,025.00 Year 3 11,575,000 Cestow Discounted cash flow Cum discounted cashion Discounted payback period ves Which version of project pack beti should the evaluating tuta given to the oriy Year o Year 2 Cash flow -$4,500,000 Year $1,800,000 $3,825,000 Year 3 51,575,000 Discounted cash flow Cumulative discounted cash flow Discounted payback perfod: 5 years Which version of a project's payback period should the CFO use when evaluating project beta given its theoretical Superiority The regular payback period The dincounted pastack period One theoretical disadvantage of both payhack methods compared to the naturesent we method is that they fail to consider the value of the cash Tiawu beyond the point in time to the payback period How much valuw in this example down the discounted payback period mathod Fall to recognize this to the theoretical docente $1,250,706 $4520,607 $1,696,374 52.916.955