Question

In: Finance

You are considering a project that requires an initial investment of $110,000 with a cost of...

You are considering a project that requires an initial investment of $110,000 with a cost of capital of 8%. You expect the project to have a five-year life, and produce cash flows of $19,000 in year 1, $38,000 in year 2, $58,000 in year 3, $29,000 in year 4 and $10,000 in year 5.

What is this project’s Discounted Payback Period?

Group of answer choices

A. 3.96 years

B. 2.91years

C. 3.65 years

D. 3.28 years

Solutions

Expert Solution

Ans C. 3.65 years

Year Project Cash Flows (i) DF@ 8% DF@ 8% (ii) PV of Project A ( (i) * (ii) ) Cumulative Cash Flow
0 -110000 1 1                       (1,10,000.00)          (1,10,000.00)
1 19000 1/((1+8%)^1) 0.926                            17,592.59             (92,407.41)
2 38000 1/((1+8%)^2) 0.857                            32,578.88             (59,828.53)
3 58000 1/((1+8%)^3) 0.794                            46,042.27             (13,786.26)
4 29000 1/((1+8%)^4) 0.735                            21,315.87                 7,529.60
5 10000 1/((1+8%)^5) 0.681                              6,805.83               14,335.44
NPV                            14,335.44
Discounted Payback Period = 3 years + 13786.26/21315.87
3.65 years

jeff jeffy answered 7 months ago
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