The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: 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 Delta'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 corventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year o Year 3 Year 1 $2,000,000 Year 2 $4,250,000 -$5.000.000 $1.750.000 Expected cash flow Cumulative cash flow Conventional payback periode 5 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 Delta's discounted payback period, assuming the company has a 7 cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whola dollar and the discounted payback period to the nearest two decimal places. For full credit, complete the entire table. (Note: If your answer is negative use a minus signi) Year o Year 3 Year 2 Year 1 Ch 10: Assignment - The Basics of Capital Budgeting: Evaluating Cash Flows Year o Year 1 Year 2 Expected cash flow $5,000,000 $2,000,000 $4,250,000 Cumulative cash flow S Conventional payback period: years Year 3 $1,750,000 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 Delta's discounted payback period, assuming the company has a 7% 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 the nearest two decimal places. For full credit, complete the entire table. (Note: If your answer is negative use a minus sign.) Year o Year 1 Year 2 Year 3 $1,750,000 Cash flow - $5.000.000 $2,000,000 $4,250,000 IS $ Discounted cash flow S Cumulative discounted cash flow Discounted payback periode years which version of a project's payback period should the CFO use when evaluating Project Delta given its theoretical superiority? The regular payback period The discounted payback period One theoretical disadvantage of both payback methods-compared to the nat present value method is that they fail to consider the value of the cas flows beyond the point in time equal to the payback period. How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? Year Year 1 Year3 flow -55.000.000 $ S Year 2 54.250.000 S $ 52.000.000 $ s Discounted cases Omdative discounted cash flow Discounted payback periode $1.750.000 5 5 years Which won of project's payback period should the CFO use when evaluating Project Delts, gents there perty the regular payback period The des courted wyback period One theoretical disadvantage of both paybackthodcompared to the reposent value methods that the alto consider the of the nyone to the payback periode How much you do the discounted back ridho fatto recognised a decency? 12.003. 1424321 3:212680 IH Grade It Now Save & Continue Co without earch O pie M
