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 ago
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