Cute Camel Woodcraft Company 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, Cute Camel'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 two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year o Year 1 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 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. full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Year o Year 1 Year 2 Year 3 Cash flow -$5,000,000 $2,000,000 $4,250,000 $1,750,000 Discounted cash flow $ Cumulative discounted cash flow $ $ S 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 in this example does the discounted payback period method fail to recognize due to this theoretical deficiency? $1,763,323 $3,186,183 $4,928,461 $1,351,321 Suppose ABC Telecom Inc.'s CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. Year Cash Flow Year 1 $275,000 Year 2 $425,000 Year 3 $500,000 Year 4 $450,000 If the project's weighted average cost of capital (WACC) is 8%, what is its NPV? $396,678 $357,010 $436,346 $476,014 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the time value of money into account. The discounted payback period does not take the project's entire life into account. The discounted payback period is calculated using net income instead of cash flows
