Question

Net Cash Flows:     -6,009,700           1,775,000            1,776,500            1,573,500                4,099,300

Net Cash Flows:      -2,698,900           585,400               790,300              1,043,800                1,239,600

Net Cash Flows:      -5,418,900           1,322,400             1,447,900           2,246,100                3,595,800

What is the payback period (PP) for each of the net cash flows?

What is the discounted payback period (DPP) for each of the net cash flows?

Answer 1

a

Payback period:

Payback period is the period in which initial investment is recovered.

PBP = Year in which least +ve Closing Balance + [ Closing balance at that year / Cash flow in Next Year ]
If Actual PBP > Expected PBP - Project will be rejected
Actual PBP </= Expected PBP - Project will be accepted

Pay Back period for Cash flows 1

Year	Opening Balance	Cash Flow	Closing Balance
1	$    60,09,700.00	$ 17,75,000.00	$ 42,34,700.00
2	$    42,34,700.00	$ 17,76,500.00	$ 24,58,200.00
3	$    24,58,200.00	$ 15,73,500.00	$    8,84,700.00
4	$       8,84,700.00	$ 40,99,300.00	$ -32,14,600.00

PBP = Year in which least +ve Closing Balance + [ Closing balance at that year / Cash flow in Next Year ]

= 3 Years + [ $ 884700 / $ 4099300 ]

= 3 Years + 0.22 Years

= 3.22 Years

Payback Period is 3.22 Years

Pay Back period for Cash flows 2

Year	Opening Balance	Cash Flow	Closing Balance
1	$    26,98,900.00	$   5,85,400.00	$ 21,13,500.00
2	$    21,13,500.00	$   7,90,300.00	$ 13,23,200.00
3	$    13,23,200.00	$ 10,43,800.00	$    2,79,400.00
4	$       2,79,400.00	$ 12,39,600.00	$   -9,60,200.00

PBP = Year in which least +ve Closing Balance + [ Closing balance at that year / Cash flow in Next Year ]

= 3 Years + [ $ 279400 / $ 1239600 ]

= 3 Years + 0.23 Years

= 3.23 Years

Payback Period is 3.23 Years

Pay Back period for Cash flows 3

Year	Opening Balance	Cash Flow	Closing Balance
1	$    54,18,900.00	$ 13,22,400.00	$ 40,96,500.00
2	$    40,96,500.00	$ 14,47,900.00	$ 26,48,600.00
3	$    26,48,600.00	$ 22,46,100.00	$    4,02,500.00
4	$       4,02,500.00	$ 35,95,800.00	$ -31,93,300.00

PBP = Year in which least +ve Closing Balance + [ Closing balance at that year / Cash flow in Next Year ]

= 3 Years + [ $ 402500 / $ 3595800 ]

= 3 Years + 0.11 Years

= 3.11 Years

Payback Period is 3.11 Years

As discount rates are not given in the question, it is not possible to calculate Discounted pay back period

If you know the discount rate, Plz comment i will provide you the updated answer

Pls do rate, if the answer is correct and comment, if any further assistance is required.