ssignment 11 - The Basics of Capital Budgeting ue on Dec 5 at 8 AM EST The conve

Question

ssignment 11 - The Basics of Capital Budgeting ue on Dec 5 at 8 AM EST The conventional payback period ignores the time value of money, and this now asked you to compute Delta's discounted payback period, assuming the company has a 8% cost 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. concerns Green Caterpillar's CFO. He has f capital. Year 0 Year 1 Year 2 Year 3 Cash fioww Discounted cash flovw Cumulative discounted cash flow -4,500,000 $1,800,000 $3,825,000 $1,575,000 Di d payback period Which version of a project's payback period should the CrO use when evaluating Project Delita, given its theoretical superiority? O The discounted payback period O The regular payback period a0 0 Type here to s

Explanation / Answer

calculation of Discounted payback period year 0 year 1 year2 year3 cash Flow -4500000 1800000 3825000 1575000 Discounting factor at 8% 1 0.9259 0.8573 0.7938 Discounted Cash Flow -4500000 1666667 3279321 1250286 Cumulative Discounted cash flow 1666667 4945988 6196273 Discounted payback period   = 1 year + [ (4500,000-1666667)/3279321] =1 year + 0.864 year =1.864 year Which version of a project’s payback period should the CFO use when evaluating Project Alpha, given its theoretical superiority Answer ; Discounted payback period . The CFO should use the discounted payback period in evaluating Project , because the discounted payback period takes into time value of Money in computing Expected cash Flows from project and time value Does not considered by the regular payback period.

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