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Need help with second table & following questions The payback method helps firms establish and identify a maximum acceptable payback period that helps in their
Need help with second table & following questions
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decasions. Consider the case of Cute Camel Woodaraft Company: Cute Camel Woodcaft Company is a small firm, and several of its managers are worned 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 eventy throughout each year. Complete the following table and compute the project's conventonal payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If vour answer is negative, be sure to use a minus bign in your answer.) The conventional paybadx period ignores the time value of money, and this concerns Cute Camel's cFO. He has now asked you to compute Sigma's discounted paybadk period, assuming the compamy 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 paybadk period to two decimal places. For full dedit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answex) Which version of a project 2 payback penod ahould the CFO use when evaluating Project sigma, given its theoretical superionty? The regular payback penod The discounted payback penod One theoretical disadvantage of both payback methods-compared to the nee present value method - is that they fal to consider the value of the cash flow bevond the point in time equal to the payback penod. How much value in this example does the discounted parvack period methoo tai to responize de to this theoretical deficency? How much value in this example does the discounted payback period method fail to recognize due to this theoret $3,186,183 $1,351,321 $1,763,323 $4,928,461 Step by Step Solution
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