PLEASE HELP!
Thank you very much!
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
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