A project has an initial cost of $60,000, expected net cash inflows of $14,000 per year...

A project has an initial cost of $60,000, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 13%. What is the project's discounted payback period? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

years

Solutions

Expert Solution

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 6+(4,034.302954338140 /5,950.849012445990 )

= 6.68 Years

Answer = 6.68 Years

Note:

	Cash Flow	Discounting Factor ( 13%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow (Present Value of Current Year+ Cumulative Cash Flow of Previous Year)
0	-60,000	1	-60,000.000000000000	-60,000.000000000000
1	14,000	0.8850	12,389.380530973500	-47,610.619469026500
2	14,000	0.7831	10,964.053567233100	-36,646.565901793400
3	14,000	0.6931	9,702.702271887740	-26,943.863629905700
4	14,000	0.6133	8,586.462187511280	-18,357.401442394400
5	14,000	0.5428	7,598.639103992280	-10,758.762338402100
6	14,000	0.4803	6,724.459384063960	-4,034.302954338140
7	14,000	0.4251	5,950.849012445990	1,916.546058107850

jeff jeffy answered 1 year ago

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