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 Alpha's expected future cash flows. To answer this question, Cute Camel's CFO has asked that your 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. Round the payback period to the nearest two decimal places. Be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered. Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Year 0 -$4,500,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: $0 1.10 years O The regular payback period The discounted payback period Year 1 $1,800,000 The conventional payback period ignores the time value of money, and this concerns Cute Camel's CFO. He has now asked you to compute Alpha's discounted payback period, assuming the company has a 9% cost of capital. Year 0 -$4,500,000 $1,800,000 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. Again, be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered. -$4,500,000 -$4,500,000 1.2 years Year 2 $3,825,000 Year 1 $1,800,000 $5,625,000 $1,666,667 -$2,833,333 Year 3 $1,575,000 Year 2 $3,825,000 $7,200,000 $3,279,321 $445,988 Year 3 $1,575,000 Which version of a project's payback period should the CFO use when evaluating Project Alpha, given its theoretical superiority? $1,250,286 $1,696,273
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 Alpha's expected future cash flows. To answer this question, Cute Camel's CFO has asked that your 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. Round the payback period to the nearest two decimal places. Be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered. Expected cash flow Cumulative cash flow Conventional payback period: Cash flow Year 0 -$4,500,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: $0 1.10 years O The regular payback period The discounted payback period Year 1 $1,800,000 The conventional payback period ignores the time value of money, and this concerns Cute Camel's CFO. He has now asked you to compute Alpha's discounted payback period, assuming the company has a 9% cost of capital. Year 0 -$4,500,000 $1,800,000 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. Again, be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered. -$4,500,000 -$4,500,000 1.2 years Year 2 $3,825,000 Year 1 $1,800,000 $5,625,000 $1,666,667 -$2,833,333 Year 3 $1,575,000 Year 2 $3,825,000 $7,200,000 $3,279,321 $445,988 Year 3 $1,575,000 Which version of a project's payback period should the CFO use when evaluating Project Alpha, given its theoretical superiority? $1,250,286 $1,696,273
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:Consider the following case:
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 Alpha'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. Round the payback period to the nearest two decimal places. Be
sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered.
Expected cash flow
Cumulative cash flow
Conventional payback period:
Year 0
-$4,500,000
Cash flow
Discounted cash flow
Cumulative discounted cash flow
Discounted payback period:
$0
1.10 years
The regular payback period
The discounted payback period
Year 1
$1,800,000
Year 0
-$4,500,000
$1,800,000
The conventional payback period ignores the time value of money, and this concerns Cute Camel's CFO. He has now asked you to compute Alpha's
discounted payback period, assuming the company has a 9% cost of capital.
-$4,500,000
-$4,500,000
1.2 years
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. Again, be sur to complete the entire table-even if the values exceed the poin
at which the cost of the project is recovered.
Year 2
$3,825,000
Year 1
$1,800,000
$5,625,000
$1,666,667
-$2,833,333
Year 3
$1,575,000
Year 2
$3,825,000
$7,200,000
$3,279,321
$445,988
Year 3
$1,575,000
Which version of a project's payback period should the CFO use when evaluating Project Alpha, given its theoretical superiority?
$1,250,286
$1,696,273
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