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. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,000,000 $1,600,000 $3,400,000 $1,400,000 Cumulative cash flow 24 Conventional payback period: уears The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute Beta'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 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 -$4,000,000 $1,600,000 $3,400,000 $1,400,000 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 Beta, given its theoretical superiority? The regular payback period O The discounted payback period
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. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,000,000 $1,600,000 $3,400,000 $1,400,000 Cumulative cash flow 24 Conventional payback period: уears The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute Beta'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 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 -$4,000,000 $1,600,000 $3,400,000 $1,400,000 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 Beta, given its theoretical superiority? The regular payback period O The discounted payback period
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
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Transcribed Image Text: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. If your answer is negative, be sure to use a minus sign in your answer.)
Year 0
Year 1
Year 2
Year 3
Expected cash flow
-$4,000,000
$1,600,000
$3,400,000
$1,400,000
Cumulative cash flow
%24
%24
%24
Conventional payback period:
years
The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute Beta'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 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
-$4,000,000
$1,600,000
$3,400,000
$1,400,000
Discounted cash flow
%24
%24
Cumulative discounted cash flow
Discounted payback period:
years
Which version of a project's payback period should the CFO use when evaluating Project Beta, given its theoretical superiority?
O 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 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?
$2,506,386
O $3,861,758
O $1,316,303
$1,051,841
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