cengage.cam MINDTAP From Cen Assignment 11 - The Basics of Capital Budgeting Due

Question

cengage.cam MINDTAP From Cen Assignment 11 - The Basics of Capital Budgeting Due on Dec 5 at 8 AM EST The conventional payback period ignores the time value of money, and this concens Cute Camel's CFO. He has now asked you to compute Sigma's discounted payback period, assuming the company has a 9% 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 the nearest two decimal places. For full credit, complete the entire table. Year 2 $5,100,000 Year 3 $2,100,000 Year 0 Year 1 Cash flow Discounted cash flow Cumulative discounted cash flow -6,000,000 $2,400,000 Discounted payback period: Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? O The discounted payback period O The regular payback period

Explanation / Answer

0                             1                   2                   3 Cash Flow         -60,00,000            24,00,000 51,00,000 21,00,000 Dis. Fact.=1/(1+.09)^n              1.00000                0.91743      0.84168      0.77218 Disc. Cash Flow         -60,00,000            22,01,835 42,92,568 16,21,585 Cummulative         -60,00,000           -37,98,165     4,94,403 21,15,988 Payback period=1+2201835/4292568                       1.51 Years As discounted cash flow take the into consideration the decrease in the value of money due to time, so discounted payback period be given theritical superiority for evaluating the project

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