Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribedimage text in transcribed

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 two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flovw Cumulative cash flow Conventional payback period: $2,000,000 $4,250,000 $5,000,000 $1,750,000 years The conventional payback period ignores the time value of money, and this concerns Cute Camel's CFO. He has now asked you to compute Sigma's discounted payback period, assuming the company has a 9% 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 two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Year 2 Year O Year 1 Year 3 Cash flow Discounted cash flow Cumulative discounted cash flowS Discounted payback period: -$5,000,000 $2,000,000 $4,250,000 $1,750,000 years Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? O The discounted payback period The regular 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 in this example does the discounted payback period method fail to recognize due to this theoretical deficiency? O$1,351,321 O $3,186,183 O $4,928,461 $1,763,323

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials of Managerial Finance

Authors: Scott Besley, Eugene F. Brigham

14th edition

324422709, 324422702, 978-0324422702

More Books

Students also viewed these Finance questions