Question

King Fisher Aviation is evaluating an investment project with the following case flows:

year 1 $6,000:

year 2 $5,500:

year3 $7,000:

year 4 $8,000

Discount rate 14 percent What is the discounted payback period for these cash flows if the initial cost is 15,000? What if the initial cost is $12,000? What if the cost is $16,000?

I need all 4 years with the discount rate at 14% and with the different initial costs.

Annual cash inflows:
Year 1	$          6,000
Year 2	5,500
Year 3	7,000
Year 4	8,000
Discount rate	14%
Initial cost	$        15,000
	.
Output area:
Discounted payments:
Year 1
Year 2
Year 3
Year 4
Payback period

Answer 1

Statement shwoing Cummulative value of present value of cash flow

Year	Cash flow	PVIF @ 14%	Present value	Cummulative cash flow
1	6000	0.877	5263.16	5263.16
2	5500	0.769	4232.07	9495.23
3	7000	0.675	4724.80	14220.03
4	8000	0.592	4736.64	18956.67

If initial cash flow is 15000, then Discounted payback period can be found out using interpolation method

Year	Cummulative cash flow
3.00	14220.03
4.00	18956.67
1.0	4736.64
?	779.97

=779.97/4736.64 = 0.1647

Thus Discounted payback period = 3+0.1647 = 3.1647 years

If initial cash flow is 12000, then Discounted payback period can be found out using interpolation method

Year	Cummulative cash flow
2.00	9495.23
3.00	14220.03
1.0	4724.80
?	2504.77

2504.77/4724.8 = 0.53

Thus discounted payback period = 2+0.53 = 2.53 years

If initial cash flow is 16000, then Discounted payback period can be found out using interpolation method

Year	Cummulative cash flow
3.00	14220.03
4.00	18956.67
1.0	4736.64
?	1779.97

=1779.97/4736.64 = 0.3758

Thus Discounted payback period = 3+0.3758 = 3.3758 years