Question

11. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in capital budgeting decisions. There are two versions of the payback method: the conventional payback method and the discounted payback method Consider the following case: 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 Omega'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. 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.

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General ECopy Fill Sort & Find & Filter Select B IU В IUT Merge & Center Paste 000 Conditional Format Cell Insert Delete Format % Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fr AR146 AP AQ AR AS AT AU AV AW AX 146 147 148 149 150 151 YEAR 152 0 1 2 3 CFAT 3825000 153 -4500000 1800000 1575000 CCFAT 154 -4500000 -2700000 1125000 2700000 155 INVESTMENT WILL BE RECOVERED 156 157 IN 2 ND YEAR PBP 1+CCFAT1/CFAT2 158 PBP 1+2700000/3825000 (IGNORE NEGATIVE SIGN OF 3000000) 159 PBP 1.70588 YEARS 160 161 PBP 1.71 YEARS 162 1C2 HPR GMAM EAC MACRS ST I NPV IRRnpvbeta invest, EAA RATION PBP ARR MI-np-ir REPLACEMENT S RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT EEE 130% erences: JF17 Rea W 12:00 TENG 04-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum - Cut A A Wrap Text Number Calibri 11 Copy Fill B IU Merge & Center Paste 000 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fr AU176 AP AQ AR AS AT AU AV AW AX 162 163 164 ANS 2 DISCOUNTED PAYBACK PERIOD YEAR 0 1 2 165 166 CFAT -4500000 1800000 3825000 1575000 167 PV FACTOR @9% 1 0.9174 0.8417 0.7722 1216188.98 168 DISCOUNTED CASH FLOW -4500000 1651376.15 3219425.97 169 DISCOUNTED CCFAT 370802.12 1586991.10 -4500000 -2848623.85 170 INVESTMENT 171 WILL BE RECOVERED 172 IN 2 ND YEAR 173 1+ CCFAT1/(CFAT2 174 DISCOUNTED PBP DISCOUNTED PBP 1+ 2848623.86/3219425.97 175 PBP 1.884823533 YEARS 176 PBP 1.88 YEARS 177 178 CFO SHOULD USE 179 180 THE DISCOUNTED PAYBACK PERIOD IRRnpvbeta HPR GMAM ST I REPLACEMENT S EAC MACRS NPV BOND RATION PBP ARR invest, EAA MI-np-ir RELEVANT BETA LEVERED REPLACEMENT OPTION TO WAIT 130% erences: JF8 W 12:03 ENG 04-11-2019