Question

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash​ flows (see below). If the​ project's appropriate discount rate is 12 percent, what is the​ project's discounted payback​ period?

Year	Project Cash Flow
0	$(150) Million
1	$95 Million
2	$65 Million
3	$95 Million
4	$110 Million

The​ project's discounted payback period is ____years. ​(Round to two decimal​ places.)

Answer 1

Discounted cash flow of each year = cash flow / (1 + discount rate)ⁿ, where n = number of years.

Discounted payback period is the time taken for the cumulative discounted cash flows to equal zero

Discounted payback period = 2 + (cash flow required in year 3 for cumulative discounted cash flows to equal zero / year 3 discounted cash flow)

Discounted payback period = 2 + ( $13,360,969 / $67,619,124) = 2.20 years