In: Finance
17. Compute the Discounted Payback statistic for Project X and
recommend whether the firm should accept or reject the project with
the cash flows shown below if the appropriate cost of capital is 11
percent and the maximum allowable discounted payback is 3
years.
Time: | 0 | 1 | 2 | 3 | 4 | 5 |
Cash flow: | -990 | 440 | 540 | 460 | 360 | 210 |
Discounted payback of this project is 2.46 years and project is acceptable.
Year | Cash Flow | Discount factor | Discounted Cash Flow | Cumulative Discounted Cash Flow | |||
a | b | c=1.11^-a | d=b*c | e | |||
0 | $ -990 | 1.0000 | -990 | -990 | |||
1 | 440 | 0.9009 | 396 | -594 | |||
2 | 540 | 0.8116 | 438 | -155 | |||
3 | 460 | 0.7312 | 336 | 181 | |||
4 | 360 | 0.6587 | 237 | 418 | |||
5 | 210 | 0.5935 | 125 | 543 | |||
Discounted Payback | = | 2+(155/336) | |||||
= | 2.46 Years |