Question

Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about how soon the firm will be able toWhich version of a projects payback period should the CFO use when evaluating Project Alpha, given its theoretical superioriPLEASE HELP!

Thank you very much!

0 0
Add a comment Improve this question Transcribed image text
Answer #1
Year 0 Year 1 Year 2 Year 3
Expected Cash Flow -6000000 2400000 5100000 2100000
Cumulative Cash Flow -6000000 -3600000 1500000 3600000
Conventional Payback Period (3600000/5100000+1)                         1.71
Year 0 Year 1 Year 2 Year 3
Expected Cash Flow $ (60,00,000.00) $    24,00,000.00 $    51,00,000.00 $    21,00,000.00
PV factor 9% 1/(1+r)^n                    1.0000                    0.9174                    0.8417                    0.7722
Discounted Cash Flow $ (60,00,000.00) $    22,01,834.86 $    42,92,567.97 $    16,21,585.31
Cumulative Discounted Cash Flow $ (60,00,000.00) $ (37,98,165.14) $    64,94,402.83 $    59,14,153.27
Discounted Payback Period (3798165.14/4292567.97+1) $                    1.88

Which version of a project's payback period should the CFO use when evaluating Project Delta, given its theoretical superiority?

The discounted payback period (Because it consider time value of money)

How much value does the discounted payback period method fail to recognize due to this theoretical deficiency?

NPV consider Year 2 and Year 3 value,however Discounted payback period consider only up to 1.88 hence deficiency is

=(1-3798165.14/4292567.97)*4292567.97+1621585.31

=$2115988

Add a comment
Know the answer?
Add Answer to:
PLEASE HELP! Thank you very much! Cute Camel Woodcraft Company is a small firm, and several...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about...

    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...

  • Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about...

    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...

  • 7. The payback period Aa Aa E The payback method helps firms establish and identify a...

    7. The payback period Aa Aa E 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 Omega's expected future cash flows. To answer this question, Cute Camel's CFO has asked that...

  • Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried...

    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 Delta'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...

  • Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried...

    Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon th Firm will be able to recover its initial investment from Project Delta'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...

  • 12. The payback period The payback method helps firms establish and identify a maximum acceptable payback...

    12. The payback period 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: Green Caterpillar Garden Supplies 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...

  • en min, and several or its managers are worried about how soon the TIF will be...

    en min, and several or its managers are worried about how soon the TIF will be able to recover its initial investment from Project Delta'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...

  • The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital b...

    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 Delta's expected future cash flows. To answer this question, Green Caterpillar's CFO has asked that you compute the project's payback...

  • Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about...

    Blue Hamster Manufacturing 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, Blue Hamster'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...

  • Complete the following table and compute the project's conventional payback period. For full credit, complete the...

    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 Year 1 Year 2 Year 3 -$6,000,000 $2,400,000 $5,100,000 $2,100,000 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...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT