Problem 7-3 Calculating Discounted Payback An investment project has annual cash inflows of $4,400, $3,900, $5,100,...

Problem 7-3 Calculating Discounted Payback

An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, and a discount rate of 14 percent.

What is the discounted payback period for these cash flows if the initial cost is $5,700? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

What is the discounted payback period for these cash flows if the initial cost is $7,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

What is the discounted payback period for these cash flows if the initial cost is $10,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

Solutions

Expert Solution

			Case A			case B			case C
year	PVF@ 14%	cash flow	*Discounted cash flow [PVF CF]**	cummulative discounted cash flow	cash flow	*Discounted cash flow [PVF CF]**	cummulative discounted cash flow	cash flow	*Discounted cash flow [PVF CF]**	cummulative discounted cash flow
0	1	-5700	-5700	-5700	-7800	-7800	-7800	-10800	-10800	-10800
1	.87719	4400	3859.64	-1840.36 [-5700+3859.64]	4400	3859.64	-3940.36 [-7800+3859.64]	4400	3859.64	-6940.36
2	.76947	3900	3000.93	1160.57 [-1840.36+3000.93]	3900	3000.93	-939.43 [-3940.36+3000.93]	3900	3000.93	-3939.43
3	.67497	5100	3442.35		5100	3442.35	2502.92 [-939.43+3442.35]	5100	3442.35	-497.08
4	.59208	4300	2545.94		4300	2545.94		4300	2545.94	2048.86

Discounted payback period = period up to which cummulative discounted cash flow is negative+ (cummulative discounted cash flow of that period /discounted cash flow of next period]

case A= 1+ [1840.36/3000.93]

= 1+ .61

= 1.61 years

case B: 2 + [939.43/3442.35]

= 2+.27

= 2.27 years

case C : 3 + [497.08/2545.94]

3 + .20

3.20 years

jeff jeffy answered 1 year ago

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