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beigetoad158Lv1
28 Nov 2020
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: 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. For full credit, complete the entire table. Year Year 1 Year 2 Year 3 $5,100,000 $2,100,000 $2,400,000 Expected cash flow 6,000,000 Cumulative cash flow Conventional payback period:
Year
Cash flow
Cumulative cash flow
0
-6,000,000
1
2,400,000
2
5,100,000
3
2,100,000
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 7% 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.
Year
Discounted Cashflow
Cumulative discounted cash flow
1
2
3
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: 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. For full credit, complete the entire table. Year Year 1 Year 2 Year 3 $5,100,000 $2,100,000 $2,400,000 Expected cash flow 6,000,000 Cumulative cash flow Conventional payback period:
Year | Cash flow | Cumulative cash flow |
0 | -6,000,000 | |
1 | 2,400,000 | |
2 | 5,100,000 | |
3 | 2,100,000 |
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 7% 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.
Year | Discounted Cashflow | Cumulative discounted cash flow |
1 | ||
2 | ||
3 |
Vaishali YadavLv10
2 Feb 2021