Question

The company is considering a new computer system that has an inital investment of $50,000. Annual expected cash savings is year 1 =$20,000, year 2 =$36,000 and year 3=$50,000. The company s cost of capital is 8%. What is the discounted payback period? a) 1.83 years b) 2.02 year c) 3 years d) never paid back

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
	Year	Cash Inflow	Cummulative Cash Inflow
	1	$               20,000	$                                                                                                      20,000
	2	$               36,000	$                                                                                                      56,000
	3	$               50,000	$                                                                                                    106,000
Payback Period	Years before Recovery	+	Unrecovered Cost at start of the year/Cash Flow during the Next year
	Years before Recovery	1
	Unrecovered Cost	50000-20000	$                                                                                                      30,000
	Cash Flow during year 2		$                                                                                                      36,000
Payback Period	1+(30000/36000)
	1.83	Years