Question

Project L costs $40,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 11%. What is the project's discounted payback? Round your answer to two decimal places. years

Answer 1

Solution

For finding the discounted payback ,present value of each cashflow will be calculated and then subsequently the cumulative present value will be calculated

Present value of a cashflow=Cashflow/(1+r)^n

where

r-intrest rate per period-WACC-11%

n=number of discountig periods

The cumulative Present value is calculetd below

Excel formula

Now the

Discounted payback=Last year with -ive cumulative present value of cashflow+ (Absolute value of Last year with -ive cumulative present value of cashflow/Present value of the cashflow in the year next to =Last year with -ive cumulative present value of cashflow )

Putting values

Discounted payback=6+1925.159316/4334.925698

Solving we get

Discounted payback=6.44 years(Rounded to 2 decimal places)

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