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Company XYZ is considering project A. Project A requires an initial investment of $75,000.

Company XYZ is considering project A. Project A requires an initial investment of $75,000. It generates $35,000 each year for the coming 3 years. What is the discounted payback period for this project if the proper discount rate is 18%?

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Expert Solution

Discounted Pay Back Period = no. of years it takes to break even the initial outlay by considering the PV of future cash flows.

 

Pay Back Period= Low Year +((Initial Outflow - Cumulative Cash flow at low year) / Cash flow at high year)*(difference in Year)

Year Cash Flow PVF At 18.00%

PV

 Cumulative

1

35000

0.847

29661.017

29661.017

2

35000

0.718

25136.455

54797.472

3

35000

0.609

21302.081

76099.553
         
Initial Outflow

-75000

      
Low Year High Year      

2

3

      
Amt Recovered High Year PV      

54797.472

21302.081

      
         
Discounted Payback Period

2.95

      

 

The discounted payback period for this project if the proper discount rate is 18% = 2.95 Years.

The discounted payback period for this project if the proper discount rate is 18% = 2.95 Years.

Junaid answered 1 year ago
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