Please help with this whole problem, I just cant get it Complete the following t
ID: 2761195 • Letter: P
Question
Please help with this whole problem, I just cant get it
Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. The conventional payback period ignores the time value of money, and this concerns Fuzzy Button's CFO. He has now asked you to compute Beta's discounted payback period, assuming the company has a 10% 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. Which version of a project's payback period should the CFO use when evaluating Project Beta, given its theoretical superiority? The discounted payback period The regular payback period One theoretical disadvantage of both payback methods-compared to the net present value method-is that they fail to consider the value of the cash flows beyond the point in time equal to the payback period. How much value does the discounted payback period method fail to recognize due to this theoretical deficiency?Explanation / Answer
All amounts in $ Year 0 Year 1 Year 2 Year 3 Expected Cash Flow -5000000 2000000 4250000 1750000 Cumulative Cash Flow -5000000 -3000000 1250000 3000000 Conventional Payback period 1 year 8 months Year 0 Year 1 Year 2 Year 3 Cash Flow -5000000 2000000 4250000 1750000 Discounted Cash Flow -5000000 1818182 3512396.69 Cumulative Discounted Cash Flow -5000000 -3181818 5330578.51 Discounted Payback Period 1 year 11 months While evaluating Project Beta, the CFO should use the discounted payback period method, given its theoretical superiority. The NPV of the project, given the details above, is 14,95,799.47 The discounted payback period fails to recognise $ 1,645,380 due to its theoretical deficiency.