Question

A Company is evaluating the idea of invest $180,000 in a machine and $20,000 in others initial costs. In the first year the company will have $100,000 revenue. In the second and third year the revenues are going to increase 10% per year. Calculate discount payback period. (Discount rate 20%)

Answer 1

Let us calculate discounted cash flow at the rate 20%
Year	Cash Flow	PV Factor	PV Of Cash Flow	Accumulated Discounted Cash flow
a	b	c=1/1.20^a	d=b*c
0	$ -200,000	1	$       -200,000.00	$                               -200,000.00
1	$   100,000	0.833333333	$           83,333.33	$                              (116,666.67)
2	$   110,000	0.694444444	$           76,388.89	$                                 (40,277.78)
3	$   121,000	0.578703704	$           70,023.15	$                                   29,745.37
We can see that in the year 3 discounted cash flow become positive
Therefore discounted payback period is
=2 year+$40277.78/70023.15
=2.58 years