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G Aplia Student Question x aplia.com/ iz?quiz probGuid-QONAPCOA8010100000041cdaa0d00008ctx robert2-00398ack-m 1529102251919 0AAA ected future 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 Sigma'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 folowing expected net cash flows and assuming thet the cash flows are received evenly throughout each year Complete the following table and compute the project's conventional paybeck period. Far fu credit, complete the entire table Year o Year 1 Year 2 Year 3 54,675,000 $1,925,000 Expected cash flow Cumulative cash flow 5,500,000 $2,200,000 The convertional payback penod ignores the time vw, of mor.ey and this concerns ?¡ve Hensters CFO He has now asked you to compute Sigme's discounted peyback perest assumng te oomory has 9% cost of capital Complete the following table and perform any necessary cakulations. Round the discounted cash fnlow values to the nearest whole doilar, and the discounted payback period to the nearest two decimal places. For full creait, complete Year 1 Year 3 -5,500,000 $2,200,000 4,675,000 $1,925,000 Discounted cash Flow Cumulative dis unted cash now Discounted payback period. ? ] Which version of a project's payback period should the CF0 use when evaluating Project Sigma, given its thecretical which version of a project's payback period should the CrO use whe superiortY? O The regular payback period

Explanation / Answer

Cost of capital is 9%

Year 1 = 2,200,000 D.F=1/1.09=0.91743 = 2,200,000*0.91743=2018346

Year 2=4,675,000 D.F=1/1.092=0.8416,4675000*0.8416=3934480

Year 3=1,925,000 D.F==1/1.093=0.772, =1,486,100

Now capital is 5,500,000

After year 1 = 5500000-2018346=3481654

Year 2= 3481654/3934480=0.885

Therefore discounted payback period is 1.885 years.

Cumulative cash flow is $2018346+3934480+1486100=7438926

Fail to recognize is 7438926-5,500,000=$1938926 (Dollar precision is missing however answer in the option is $1939656)

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