Question

An investment project costs $10,000 and has annual cash flows of $3,000 for six years.

  

a.	What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the discounted payback period if the discount rate is 6 percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What is the discounted payback period if the discount rate is 20 percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

	a. Discounted payback period years b. Discounted payback period years c Discounted payback period years

Answer 1

a.	Discounted payback period			3.33 Years
	Year	Cash flow	Discount factor	Present value	Cumulative Present value
	a	b	c=1.00^-a	d=b*c	e
	0	$       -10,000	1.00	$       -10,000	$ -10,000
	1	$           3,000	1.00	$           3,000	$   -7,000
	2	$           3,000	1.00	$           3,000	$   -4,000
	3	$           3,000	1.00	$           3,000	$   -1,000
	4	$           3,000	1.00	$           3,000	$     2,000
	5	$           3,000	1.00	$           3,000	$     5,000
	Discounted payback		=	3+(1000/3000)
			=	3.33
b.	Discounted payback period			3.83 Years
	Year	Cash flow	Discount factor	Present value	Cumulative Present value
	a	b	c=1.06^-a	d=b*c	e
	0	$       -10,000	1.00	$       -10,000	$ -10,000
	1	$           3,000	0.94	$           2,830	$   -7,170
	2	$           3,000	0.89	$           2,670	$   -4,500
	3	$           3,000	0.84	$           2,519	$   -1,981
	4	$           3,000	0.79	$           2,376	$         395
	5	$           3,000	0.75	$           2,242	$     2,637
	Discounted payback		=	3+(1981/2376)
			=	3.83
c.	Discounted payback period			0
	Year	Cash flow	Discount factor	Present value	Cumulative Present value
	a	b	c=1.20^-a	d=b*c	e
	0	$       -10,000	1.00	$       -10,000	$ -10,000
	1	$           3,000	0.83	$           2,500	$   -7,500
	2	$           3,000	0.69	$           2,083	$   -5,417
	3	$           3,000	0.58	$           1,736	$   -3,681
	4	$           3,000	0.48	$           1,447	$   -2,234
	5	$           3,000	0.40	$           1,206	$   -1,028