Question

Discounted Payback A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places. years

Answer 1

Payback period is the time within which cost of project is recovered back.
Discounted payback period is the time, present value of cash inflows of that period becomes equal to the cost of project.
Year	Cash flows		Discount factor		Present Value		Cumulative Present Value
a	b		c=1.11^-a		d=b*c		e
0	$       -40,000		1.0000		$ -40,000.00		$ -40,000.00
1	9,000		0.9009		8,108.11		-31,891.89
2	9,000		0.8116		7,304.60		-24,587.29
3	9,000		0.7312		6,580.72		-18,006.57
4	9,000		0.6587		5,928.58		-12,077.99
5	9,000		0.5935		5,341.06		-6,736.93
6	9,000		0.5346		4,811.77		-1,925.16
7	9,000		0.4817		4,334.93		2,409.77
8	9,000		0.4339		3,905.34		6,315.10
9	9,000		0.3909		3,518.32		9,833.43
	Discounted payback period			=	6+(1925.16/4334.93)
				=	6.44	Years
Thus,
	Discounted payback period for Project A is 6.44 Years.