Question

« CENGAGE MINDTAP Q Search this course Ch 11: Assignment - The Basics of Capital Budgeting 0 x Cold Goose Metal Works 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 Beta's expected future cash flows. To answer this question, Cold Goose'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 o Year 1 Year 2 $3,825,000 Year 3 $1,575,000 -$4,500,000 $1,800,000 Expected cash flow Cumulative cash flow Conventional payback period: years The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Beta's discounted pack period, assuming the company has a 8% 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 o Year 2 Year 3 -$4,500,000 $1,800,000 $3,825,000 $1,575,000 Cash flow Discounted cash flow Cumulative discounted cash flow Discounted payback period:

Answer 1

rate positively .. let me know if you need any clarification..

ans 1		year 0	year 1	year 2	year 3
	Expected cash flow	(4,500,000)	1,800,000	3,825,000	1,575,000
	Cumulative cash flow	-4500000	-2700000	1125000	2700000
	Conventional payback period	1.71	years	=1+2700000/3825000
ans 2
		year 0	year 1	year 2	year 3
	Expected cash flow	-4500000	1800000	3825000	1575000
	Discounted cash flow	(4,500,000)	1,666,667	3,279,321	1,250,286
	Cumulative discounted cash flow	(4,500,000)	(2,833,333)	445,988	1,696,273
	Discounted payback period	1.86	years
ans 3	Correct answer is option : The Discounted payback period
ans 4	Correct answer is option :	1,696,274