An investment has an initial cost of $1,000. The cash flows for the following four-year life...

An investment has an initial cost of $1,000. The cash flows for the following four-year life of project are $347, $394, $424, and $600. If discount rate is 14%, calculate the discounted payback period for this project. Round your answer to 4 decimal places.

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Expert Solution

ANSWER

discounted payback period = 3.2991

CASH FLOWS		PV FACTOR @14%	PV OF CASH FLOWS
YEAR 0	(1000.00)	1	-1000
YEAR 1	347.00	0.877	304.39
YEAR 2	394.00	0.769	303.17
YEAR 3	424.00	0.675	286.19
YEAR 4	600.00	0.592	355.25

Sum of first three cash flows = 304.39 + 303.17 + 286.19 = 893.74

initial cash flow still left = 1000 - 893.74 = -106.26

Discounted payback = 3 full years + part initial cash flow / cash flow in year 4

= 3 + 106.26 / 355.25

= 3.2991

jeff jeffy answered 2 years ago

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