Answered step by step
Verified Expert Solution
Link Copied!

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 discounted

image text in transcribed
image text in transcribed
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 crediit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answec) Which version of a project's payback period should the CFo use when evaluating Prolect Sigma, glven its theoretical superionity? 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 fall 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? $1,351,321$4,928,461$3,186,183$1,763,323 Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 10%, the project's NPV (rounded to the nearest dollar) is: $349,384$331,915$401,792$366,853 Which of the following statements indicate a disadvantage of usino the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period does not take the project's entire life into account. The payback period is calculated using net income instead of cash flows

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

Step: 3

blur-text-image

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

Quantitative Analysis for Management

Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Ha

12th edition

133507335, 978-0133507331

More Books

Students also viewed these Finance questions

Question

5. List the four components of GDP. Give an example of each.

Answered: 1 week ago