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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 Sigma'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 conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year O Year 1 Year 2 Year 3 Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Discounted cash flow Discounted payback period -$5,000,000 $ Cumulative discounted $ cash flow $ Years -$5,000,000 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 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 3 Year 1 $2,000,000 Year 2 $4,250,000 $1,750,000 Years $ $2,000,000 $4,250,000 $1,750,000 $ S $ $ S $ $ S Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? A. The discounted payback period B. The regular payback period How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? A. $4,928,461 B. $3,186,183 C. $1,351,321 D. $1,763,323

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 Sigma'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 conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year O Year 1 Year 2 Year 3 Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Discounted cash flow Discounted payback period -$5,000,000 $ Cumulative discounted $ cash flow $ Years -$5,000,000 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 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 3 Year 1 $2,000,000 Year 2 $4,250,000 $1,750,000 Years $ $2,000,000 $4,250,000 $1,750,000 $ S $ $ S $ $ S Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? A. The discounted payback period B. The regular payback period How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? A. $4,928,461 B. $3,186,183 C. $1,351,321 D. $1,763,323

Essentials Of Investments
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
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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 Sigma'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 conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year 0 Year 1 Year 2 Year 3 Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Discounted cash flow $ Cumulative discounted $ cash flow Discounted payback period -$5,000,000 $ 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 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 the nearest two decimal places. For full credit, complete the entire table. (Note: If your answer is negative use a minus sign.) Year 0 Year 1 Year 3 Year 2 $4,250,000 -$5,000,000 $1,750,000 Years $2,000,000 $4,250,000 $1,750,000 $ $ $2,000,000 $ $ $ $ $ $ $ Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? A. The discounted payback period B. The regular payback period How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? A. $4,928,461 B. $3,186,183 C. $1,351,321 D. $1,763,323
Transcribed Image Text: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 Sigma'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 conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year 0 Year 1 Year 2 Year 3 Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Discounted cash flow $ Cumulative discounted $ cash flow Discounted payback period -$5,000,000 $ 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 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 the nearest two decimal places. For full credit, complete the entire table. (Note: If your answer is negative use a minus sign.) Year 0 Year 1 Year 3 Year 2 $4,250,000 -$5,000,000 $1,750,000 Years $2,000,000 $4,250,000 $1,750,000 $ $ $2,000,000 $ $ $ $ $ $ $ Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? A. The discounted payback period B. The regular payback period How much value does the discounted payback period method fail to recognize due to this theoretical deficiency? A. $4,928,461 B. $3,186,183 C. $1,351,321 D. $1,763,323
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