Cullumber Communication Corp. is investing $9,882,700 in new technologies. The company’s management expects significant benefits in...

Cullumber Communication Corp. is investing $9,882,700 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years.

Year
	1	2	3	4-7
Cash Flows	$2,452,000	$5,521,000	$3,070,100	$1,000,000

What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0 for the answer.)

Expert Solution

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 3 + ( 78,106.95 / 7,92,093.66 )

= 3.10 years

Note:

	Cash Flow	Discounting Factor ( 10%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow (Present Value of Current Year+ Cumulative Cash Flow of Previous Year)
0	-98,82,700	1	-98,82,700.00	-98,82,700.00
1	24,52,000	0.9433962264150940	23,13,207.55	-75,69,492.45
2	55,21,000	0.8899964400142400	49,13,670.35	-26,55,822.11
3	30,70,100	0.8396192830323020	25,77,715.16	-78,106.95
4	10,00,000	0.7920936632380200	7,92,093.66	7,13,986.72
5	10,00,000	0.7472581728660570	7,47,258.17	14,61,244.89
6	10,00,000	0.7049605404396760	7,04,960.54	21,66,205.43
7	10,00,000	0.6650571136223360	6,65,057.11	28,31,262.54

jeff jeffy answered 1 day ago

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