It costs $53,000 to buy a food truck, which will produce the following incremental after-tax cash...

It costs $53,000 to buy a food truck, which will produce the following incremental after-tax cash inflows: Year 1, $25,000; Year 2, $20,000; Year 3, $20,000; Year 4, $25,000. Your discount rate is 10%. What is the discounted payback period?

A. 1.8 years
B. 2.4 years
C. 2.9 years
D. 3.6 years

Expert Solution

Ans C. 2.9 years

Year	Project Cash Flows (i)	DF@ 10%	DF@ 10% (ii)	PV of Project A ( (i) * (ii) )	Cumulative Cash Flow
0	-53000	1	1	(53,000.00)	(53,000.00)
1	25000	1/((1+10%)^1)	0.909	22,727.27	(30,272.73)
2	20000	1/((1+10%)^2)	0.826	16,528.93	(13,743.80)
3	20000	1/((1+10%)^3)	0.751	15,026.30	1,282.49
4	25000	1/((1+10%)^4)	0.683	17,075.34	18,357.83
		NPV	18,357.83


Discounted Payback Period =		2 years + 13743.80/15026.30
		2.9 years

jeff jeffy answered 3 years ago

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