aplia.com/af/servlet/quiz?ctx robert2-00398quiz action-takeQuizkquiz probGuid QN

Question

aplia.com/af/servlet/quiz?ctx robert2-00398quiz action-takeQuizkquiz probGuid QNAPCOA801010000004 1cdaaa00d00008ck-m re on the bookmarks bar Import bookmarks now 10. The payback period The payback method helps firms establish and identify a maximum acceptable payback perlod that helps in their capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc. 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 projet'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 Year 1 Year 2 Year 3 Expected cash flow Cumulative cash flow 5,500,000 $2,200,000 $4,675,000$1,925,000 Conventional payback period: The conventional payback period gnores the time value of money, and this cancerns Blue Hamster's CFO. He has now asked you to compute Sigma's ascounted payback perod, assuming the company nasa cost of capital Complete the folowing table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the oiscounted payback period to the nearest two docimal places. For full credit, complete the entire table. Year o Year 1 Year 2 Year 3 s, 500,000 $2,200,000 $4,675,000 $1,925,000 Cash flow Discounted cash flow Cumulative discounted cash fiow Discounted payback period: Astamper GROUND SHIPPING AS LOW AS 9.95 EEDS

Explanation / Answer

Coventional payback period:

Actual payback is during year 2 and hence, assuming that the cash flows are received in equal installments every year then the payback period will be 2years 9 months.

Discounted pay back period:

Discounted payback period=last period with negative discounted cash flow+absolute value of negative cummulative cash flow /Discounted cash flow during the period

Discounted payback period=1+[5500000-2018349]÷3934854

=1+.8848=1.88years

Year Expected cash flow Cummulative Cash Flow 0 (5500000) (5500000) 1 2200000 (3300000) 2 4675000 1375000 3 1925000 3300000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.