Following table shows the initial investment required in and cash flow (return) from a project

Following table shows the initial investment required in and cash flow (return) from a project:

The expected payback period from the project is 2 years and the discount rate is 14%. Based on the Discounted Payback Period, will you accept the project?

Expert Solution

The Net Present value of proceedings from the project during Discounted payback period of 2 years

= -Initial investment + cashflow from Year 1 /( 1+r) + cashflow from year 2 / ( 1+r)^2

r is the discount rate

NPV for 2 years = -190+110/1.14 +93/(1.14)^2

= -190+96.49+71.56

=-21.95

Since the NPV at the end of payback period is negative, the project should not be accepted.

NPV for 2 years is -21.95.

Junaid answered 1 year ago

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