A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year...

A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year for 8 years, and a cost of capital of 12%. Show your work.

What is the project’s payback period?

What is the project’s discounted payback period?

Expert Solution

Year	Cash Flow	Cumulative Cash Flow
0	-60000	-60000
1	10000	-50000
2	10000	-40000
3	10000	-30000
4	10000	-20000
5	10000	-10000
6	10000	0
7	10000	10000
8	10000	20000
TOTAL	20000

Payback Period =	6.00 years

Year	Project Cash Flows (i)	DF@ 12%	DF@ 12% (ii)	PV of Project A ( (i) * (ii) )	Cumulative Cash Flow
0	-60000	1	1	(60,000.00)	(60,000.00)
1	10000	1/((1+12%)^1)	0.893	8,928.57	(51,071.43)
2	10000	1/((1+12%)^2)	0.797	7,971.94	(43,099.49)
3	10000	1/((1+12%)^3)	0.712	7,117.80	(35,981.69)
4	10000	1/((1+12%)^4)	0.636	6,355.18	(29,626.51)
5	10000	1/((1+12%)^5)	0.567	5,674.27	(23,952.24)
6	10000	1/((1+12%)^3)	0.507	5,066.31	(18,885.93)
7	10000	1/((1+12%)^4)	0.452	4,523.49	(14,362.43)
8	10000	1/((1+12%)^5)	0.404	4,038.83	(10,323.60)
		NPV		(10,323.60)


Discounted Payback Period =		0	Since the amount cannot be	earned during the lifetime of the
			project under Discounted	Payback period.

jeff jeffy answered 1 day ago

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