Question

ABC company is evaluating an engineering project which will last for 5 years. For an initial investment of $95 million, annual net revenues are estimated to be $20 million in Year 1 to 3 and $39 million in Year 4 and 5. Assume the MARR is 6% per year and a salvage value of 1 million at the end of this project.

Use 4 decimal places of the discount factors to calculate the discounted payback period (in years). Show the cumulative Present Worth for each year.

Answer 1

Year	Cash flow	× discount rate	Discounted cash flow	Cumulative present worth	Balance to be recovered
0	$(95,000,000)	1.00000	$ (95,000,000.00)	$                         -	$ 95,000,000.00
1	$ 20,000,000	0.94340	$ 18,867,924.53	$   18,867,924.53	$ 76,132,075.47
2	$ 20,000,000	0.89000	$ 17,799,928.80	$   36,667,853.33	$ 58,332,146.67
3	$ 20,000,000	0.83962	$ 16,792,385.66	$   53,460,238.99	$ 41,539,761.01
4	$ 39,000,000	0.79209	$ 30,891,652.87	$   84,351,891.86	$ 10,648,108.14
5	$ 39,000,000	0.74726	$ 29,143,068.74	$ 113,494,960.60	$                       -
	Capital is recovered fully in year 5
	Discounted pay back period is	4 + 18.625/24.215	4.37

Discounted payback is 4.37 years.