Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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.) Cash flow Year 0 -$5,000,000 Year 1 Year 2 Year 3 $2,000,000 $4,250,000 $1,750,000 Discounted cash flow $ $ $ Cumulative discounted cash flow $ $ $ 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 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Okay lets solve this stepbystep Year 0 Cash flow 5000000 Year 1 Cash flow 2000000 Year 2 Cash flow 4...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started