Question

The Raph Turtle Co. is considering the following independent project. The project has a required payback of 3 years and a required rate of return 10%. Calculate the discounted payback period. (Round to 3 decimals)

Year	CF
0	-460,000
1	100,000
2	125,000
3	170,000
4	125,000
5	100,000

Answer 1

Year	Cash Flow	PV Factor Calculation	PV Factor @ 10%	Discounted Cash Flow	‘Cum Dis. Cash Flow
0	($460,000)	1/(1+0.10)^0	1	($460,000.00)	($460,000.00)
1	$100,000	1/(1+0.10)^1	0.909090909	$90,909.09	($369,090.91)
2	$125,000	1/(1+0.10)^2	0.826446281	$103,305.79	($265,785.12)
3	$170,000	1/(1+0.10)^3	0.751314801	$127,723.52	($138,061.61)
4	$125,000	1/(1+0.10)^4	0.683013455	$85,376.68	($52,684.93)
5	$100,000	1/(1+0.10)^5	0.620921323	$62,092.13	$9,407.21

Discounted Payback Period = A +B/C

Where,

A = Last period with a negative cumulative discounted cash flow = 4

B = Absolute value of a cumulative cash flow at the end of the period A = $ 52,684.93

C = Total discounted cash flow during the period after A = $ 62,092.13

Discounted Payback Period = 4 +?$ (52,684.93) ?/$ 62,092.13

                                                 = 4 + 0.848496

                                                 = 4.848496 or 4.848 years