Cold Goose Metal Works Inc. 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 Omega's expected future cash flows. To answer this question, Cold Goose'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 conventional payback period to two decimal places. Year 0 Year 1 Year 2 Year 3 4,000,000 $1,600,000 $3,400,000 Expected cash flow $1,400,000 Cumulative cash flow Conventional payback period: The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Omega's discounted payback period, assuming the company has a 10% 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. Year 0 Year 1 Year 2 Year 3 Cash flow 4,000,000 $1,600,000 $3,400,000 $1,400,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: Which version of a project's payback period should the CFO use when evaluating Project Omega, given its theoretical superiority? O 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. How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? O $1,051,841 O $2,506,386 O $3,861,758 O $1,316,303 O O
Cold Goose Metal Works Inc. 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 Omega's expected future cash flows. To answer this question, Cold Goose'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 conventional payback period to two decimal places. Year 0 Year 1 Year 2 Year 3 4,000,000 $1,600,000 $3,400,000 Expected cash flow $1,400,000 Cumulative cash flow Conventional payback period: The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Omega's discounted payback period, assuming the company has a 10% 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. Year 0 Year 1 Year 2 Year 3 Cash flow 4,000,000 $1,600,000 $3,400,000 $1,400,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: Which version of a project's payback period should the CFO use when evaluating Project Omega, given its theoretical superiority? O 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. How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? O $1,051,841 O $2,506,386 O $3,861,758 O $1,316,303 O O
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Cold Goose Metal Works Inc. 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 Omega's expected future cash flows. To answer this question, Cold
Goose'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 conventional payback period to two decimal places.
Year 0
Year 1
Year 2
Year 3
4,000,000
$1,600,000
$3,400,000
Expected cash flow
$1,400,000
Cumulative cash flow
Conventional payback period:
The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now
asked you to compute Omega's discounted payback period, assuming the company has a 10% 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.
Year 0
Year 1
Year 2
Year 3
Cash flow
4,000,000
$1,600,000
$3,400,000
$1,400,000
Discounted cash flow
Cumulative discounted cash flow
Discounted payback period:
Which version of a project's payback period should the CFO use when evaluating Project Omega, given its theoretical
superiority?
O 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.
How much value does the discounted payback period method fail to recognize due to this theoretical deficiency?
O $1,051,841
O $2,506,386
O $3,861,758
O $1,316,303
O O
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