Year 0

Year 1

Year 2

Year 3

Expected cash flow-$5,000,000$2,000,000$4,250,000$1,750,000Cumulative cash flow

Conventional payback period:

years

The conventional payback period ignores the time value of money, and this concerns Cute Camels CFO. He has now asked you to compute Deltas 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 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.)

	Year 0	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
Discounted payback period:	years

Which version of a projects payback period should the CFO use when evaluating Project Delta, given its theoretical superiority?

The discounted payback period

The regular payback period

One theoretical disadvantage of both payback methodscompared to the net present value methodis 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?

$3,297,680

$1,428,521

$5,140,636

$2,009,795