In: Finance
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?
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 |