Question
In: Finance
Suppose your firm is considering investing in a project with the cash flows shown below, that...
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.
Time: 0 1 2 3 4 5
Cash flow –$231,000 $65,400 $83,600 $140,600 $121,600 $80,800
Discounted payback______years
Solutions
Expert Solution
Ans 3.18 years
| Year | Project Cash Flows (i) | DF@ 11% | DF@ 11% (ii) | PV of Project A ( (i) * (ii) ) | Cumulative Cash Flow |
| 0 | -231000 | 1 | 1 | (2,31,000.00) | (2,31,000.00) |
| 1 | 65400 | 1/((1+11%)^1) | 0.901 | 58,918.92 | (1,72,081.08) |
| 2 | 83600 | 1/((1+11%)^2) | 0.812 | 67,851.64 | (1,04,229.45) |
| 3 | 140600 | 1/((1+11%)^3) | 0.731 | 1,02,805.51 | (1,423.94) |
| 4 | 121600 | 1/((1+11%)^4) | 0.659 | 80,101.69 | 78,677.75 |
| 5 | 80800 | 1/((1+11%)^5) | 0.593 | 47,950.87 | 1,26,628.62 |
| NPV | 1,26,628.62 | ||||
| Discounted Payback Period = | 3 years + 1423.94/80101.69 | ||||
| 3.18 years |
jeff jeffy answered 1 year agoRelated Solutions
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