The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies 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 Alpha's expected future cash flows. To answer this question, Green Caterpillar'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. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Expected cash flow -$4,500,000 Year 1 $1,800,000 Year 2 $825,000 Cumulative cash flow S Conventional payback period: years Year 3 $1,575,000 $ The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute Alpha'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 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 Cash flow -$4,500,000 Year 1 $1,800,000 Year 2 $3,825,000 Year 3 $1,575,000 Discounted cash flow $ $ S Cumulative discounted cash flow $ $ Discounted payback period: years
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies 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 Alpha's expected future cash flows. To answer this question, Green Caterpillar'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. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Expected cash flow -$4,500,000 Year 1 $1,800,000 Year 2 $825,000 Cumulative cash flow S Conventional payback period: years Year 3 $1,575,000 $ The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute Alpha'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 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 Cash flow -$4,500,000 Year 1 $1,800,000 Year 2 $3,825,000 Year 3 $1,575,000 Discounted cash flow $ $ S Cumulative discounted cash flow $ $ Discounted payback period: years
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
am. 121.
Transcribed Image Text:The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions.
Consider the case of Green Caterpillar Garden Supplies Inc.:
Green Caterpillar Garden Supplies 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 Alpha's expected future cash flows. To answer this question, Green Caterpillar'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. If your answer is negative, be sure to use a minus sign in your answer.)
Year 0
Expected cash flow
-$4,500,000
Year 1
$1,800,000
Year 2
$825,000
Cumulative cash flow
S
Conventional payback period:
years
Year 3
$1,575,000
$
The conventional payback period ignores the time value of money, and this concerns Green Caterpillar's CFO. He has now asked you to compute
Alpha'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 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
Cash flow
-$4,500,000
Year 1
$1,800,000
Year 2
$3,825,000
Year 3
$1,575,000
Discounted cash flow
$
$
S
Cumulative discounted cash flow
$
$
Discounted payback period:
years
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