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. 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 -$4,000,000 Year 1 $1,600,000 Year 2 Year 3 $3,400,000 $1,400,000 $ 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 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. Again, be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered.
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. 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 -$4,000,000 Year 1 $1,600,000 Year 2 Year 3 $3,400,000 $1,400,000 $ 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 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. Again, be sure to complete the entire table-even if the values exceed the point at which the cost of the project is recovered.
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: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. 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
-$4,000,000
Year 1
$1,600,000
Year 2
Year 3
$3,400,000
$1,400,000
$
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 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. Again, be sure to complete the entire table-even if the values exceed the point
at which the cost of the project is recovered.
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