Question
In: Finance
An investment project costs $18,300 and has annual cash flows of $3,900 for six years. ...
| An investment project costs $18,300 and has annual cash flows of $3,900 for six years. |
| Required : | |
| (a) | What is the discounted payback period if the discount rate is zero percent? |
| (Click to select)4.344.64.794.695.04 | |
| (b) | What is the discounted payback period if the discount rate is 4 percent? |
| (Click to select)5.415.655.25.34.95 |
| (c) | What is the discounted payback period if the discount rate is 20 percent? |
Solutions
Expert Solution
a) cash flows in 4 years = 3900*4 = 15,600
payback = 4 + (18,300 - 15,600)/3900 = 4.69 years
b)
| rate | 4.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (18,300.00) | 0 | (18,300.00) | (18,300.00) |
| 3,900.000 | 1 | 3,750.00 | (14,550.00) |
| 3,900.000 | 2 | 3,605.77 | (10,944.23) |
| 3,900.000 | 3 | 3,467.09 | (7,477.14) |
| 3,900.000 | 4 | 3,333.74 | (4,143.41) |
| 3,900.000 | 5 | 3,205.52 | (937.89) |
| 3,900.000 | 6 | 3,082.23 | 2,144.33 |
Payback = 5 + 937.89/3082.23 = 5.304 years
c) payback = 0, since the cash flows cannot be recovered
jeff jeffy answered 2 years agoRelated Solutions
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