Question
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
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 0 | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|
| Expected cash flow | -$6,000,000 | $2,400,000 | $5,100,000 | $2,100,000 |
| Cumulative cash flow |
|
|
|
|
| Conventional payback period: | years |
The conventional payback period ignores the time value of money, and this concerns Green Caterpillars CFO. He has now asked you to compute Sigmas discounted payback period, assuming the company has a 7% cost of capital.
Complete the following table and perform any necessary calculations. (Hint: 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. If your answer is negative use a minus sign.)
| Year 0 | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|
| Cash flow | -$6,000,000 | $2,400,000 | $5,100,000 | $2,100,000 |
| Discounted cash flow |
|
|
|
|
| Cumulative discounted cash flow |
|
|
|
|
| Discounted payback period: | years |
Which version of a projects payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority?
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Intermediate Financial Management
Authors: Brigham, Daves
10th Edition
978-1439051764, 1111783659, 9780324594690, 1439051763, 9781111783655, 324594690, 978-1111021573
