Question

An investment project costs $10,000 and has annual cash flows of $2,850 for six years.

  

a.	What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the discounted payback period if the discount rate is 5 percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What is the discounted payback period if the discount rate is 19 percent? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Answer 1

a)
	Year	Cash Flow	PV Factor	PV Of Cash Flow	Accumalted PV cash flow
	a	b	c=1/1.0^a	d=b*c	e
	0	$   -10,000	1.00000	$         -10,000.00	$                            -10,000.00
	1	$       2,850	1.00000	$             2,850.00	$                             (7,150.00)
	2	$       2,850	1.00000	$             2,850.00	$                             (4,300.00)
	3	$       2,850	1.00000	$             2,850.00	$                             (1,450.00)
	4	$       2,850	1.00000	$             2,850.00	$                                1,400.00
	5	$       2,850	1.00000	$             2,850.00	$                                4,250.00
	6	$       2,850	1.00000	$             2,850.00	$                                7,100.00
	Discounted payback period =3 years +1450/2850
		=3.51 years
b)	Year	Cash Flow	PV Factor	PV Of Cash Flow	Accumalted PV cash flow
	a	b	c=1/1.05^a	d=b*c	e
	0	$   -10,000	1.00000	$         -10,000.00	$                            -10,000.00
	1	$       2,850	0.95238	$             2,714.29	$                             (7,285.71)
	2	$       2,850	0.90703	$             2,585.03	$                             (4,700.68)
	3	$       2,850	0.86384	$             2,461.94	$                             (2,238.74)
	4	$       2,850	0.82270	$             2,344.70	$                                   105.96
	5	$       2,850	0.78353	$             2,233.05	$                                2,339.01
	6	$       2,850	0.74622	$             2,126.71	$                                4,465.72
	Discounted payback period =3 years +2238.74/2344.70
		=3.95 years
c)	Year	Cash Flow	PV Factor	PV Of Cash Flow	Accumalted PV cash flow
	a	b	c=1/1.19^a	d=b*c	e
	0	$   -10,000	1.00000	$         -10,000.00	$                            -10,000.00
	1	$       2,850	0.84034	$             2,394.96	$                             (7,605.04)
	2	$       2,850	0.70616	$             2,012.57	$                             (5,592.47)
	3	$       2,850	0.59342	$             1,691.24	$                             (3,901.24)
	4	$       2,850	0.49867	$             1,421.21	$                             (2,480.03)
	5	$       2,850	0.41905	$             1,194.29	$                             (1,285.74)
	6	$       2,850	0.35214	$             1,003.61	$                                 (282.13)
	Discounted payback period =never payback
		=0 years