Question

Consider the following project. Using Discounted Payback Period method (10% rate), how long will it take to recover the investment?

	Year
	0	1	2	3	4	5	6
Investment	-4000
Profit		1100	1100	1100	1100	1100	1100

Answer 1

Year	Cash flow	× discount rate	Discounted cash flow	Capital recovery to date	Balance to be recovered
0	-4000	1.00000	$     (4,000.00)	0	$       4,000.00
1	1100	0.90909	$       1,000.00	$       1,000.00	$       3,000.00
2	1100	0.82645	$          909.09	$       1,909.09	$       2,090.91
3	1100	0.75131	$          826.45	$       2,735.54	$       1,264.46
4	1100	0.68301	$          751.31	$       3,486.85	$          513.15
5	1100	0.62092	$          683.01	$       4,169.87	$                   -
6	1100	0.56447	$          620.92	$       4,790.79	$                   -
	Capital is recovered fully in year 5
	Discounted pay back period is	4 + 513.15/683.01	4.75

It takes 4.75 years to recover

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