Question
In: Finance
An investment project costs $20,100 and has annual cash flows of $4,400 for six years. ...
| An investment project costs $20,100 and has annual cash flows of $4,400 for six years. |
| Required : | |
| (a) | What is the discounted payback period if the discount rate is zero percent? |
| (b) | What is the discounted payback period if the discount rate is 6 percent? |
| (c) | What is the discounted payback period if the discount rate is 18 percent? |
| (Click to select)3.351.024.353.98Never |
Solutions
Expert Solution
Discounted Payback period is the period in which initial investment is recovered after considering the time value of money.
Part A:
| Year | Opening Bal | CF | PVF @0% | Disc CF | Closing Bal |
| 1 | $ 20,100.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ 15,700.00 |
| 2 | $ 15,700.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ 11,300.00 |
| 3 | $ 11,300.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ 6,900.00 |
| 4 | $ 6,900.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ 2,500.00 |
| 5 | $ 2,500.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ -1,900.00 |
| 6 | $ -1,900.00 | $ 4,400.00 | 1.0000 | $ 4,400.00 | $ -6,300.00 |
Disc PBP = Year in which Least +ve Cloing Bal + [ Closing Bal of that year / Disc CF ofnext year ]
= 4 + [ 2500 / 4400 ]
= 4 + 0.57
= 4.57 Years
Part B:
| Year | Opening Bal | CF | PVF @6% | Disc CF | Closing Bal |
| 1 | $ 20,100.00 | $ 4,400.00 | 0.9434 | $ 4,150.94 | $ 15,949.06 |
| 2 | $ 15,949.06 | $ 4,400.00 | 0.8900 | $ 3,915.98 | $ 12,033.07 |
| 3 | $ 12,033.07 | $ 4,400.00 | 0.8396 | $ 3,694.32 | $ 8,338.75 |
| 4 | $ 8,338.75 | $ 4,400.00 | 0.7921 | $ 3,485.21 | $ 4,853.54 |
| 5 | $ 4,853.54 | $ 4,400.00 | 0.7473 | $ 3,287.94 | $ 1,565.60 |
| 6 | $ 1,565.60 | $ 4,400.00 | 0.7050 | $ 3,101.83 | $ -1,536.23 |
Disc PBP = Year in which Least +ve Cloing Bal + [ Closing Bal of that year / Disc CF ofnext year ]
= 5 + [ 1565.60 / 3101.83 ]
= 5 + 0.50
= 5.50 Years
Part C:
| Year | Opening Bal | CF | PVF @18% | Disc CF | Closing Bal |
| 1 | $ 20,100.00 | $ 4,400.00 | 0.8475 | $ 3,728.81 | $ 16,371.19 |
| 2 | $ 16,371.19 | $ 4,400.00 | 0.7182 | $ 3,160.01 | $ 13,211.17 |
| 3 | $ 13,211.17 | $ 4,400.00 | 0.6086 | $ 2,677.98 | $ 10,533.20 |
| 4 | $ 10,533.20 | $ 4,400.00 | 0.5158 | $ 2,269.47 | $ 8,263.73 |
| 5 | $ 8,263.73 | $ 4,400.00 | 0.4371 | $ 1,923.28 | $ 6,340.45 |
| 6 | $ 6,340.45 | $ 4,400.00 | 0.3704 | $ 1,629.90 | $ 4,710.55 |
Even after COmpletion of Six years also amount yet to be recovered and CFs are not there after 6 Years.
Thus Disc PBP here is Never.
jeff jeffy answered 5 hours agoRelated Solutions
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