Question

An investment project has annual cash inflows of $3,500, $4,400, $5,600, and $4,800, and a discount rate of 14 percent.

  

What is the discounted payback period for these cash flows if the initial cost is $6,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Discounted payback period

years

  

What is the discounted payback period for these cash flows if the initial cost is $8,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Discounted payback period

years

  

What is the discounted payback period for these cash flows if the initial cost is $11,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Discounted payback period

years

Answer 1

The payback period is the length of time required to recover the cost of an investment.

Years	Cash Flows	Discounting Factor @14%	Pv of cash flows	Cummulative Pv of cash flows
1	3500	0.877192982	3070.18	3070.18
2	4400	0.769467528	3385.66	6455.83
3	5600	0.674971516	3779.84	10235.67
4	4800	0.592080	2841.99	13077.66
Total			13077.66

Discounted Payback period = Years before full recovery + unrecovered amount at the start of the period / cash flow during the period

a) Discounted payback period if initial cost is 6200 = 1 + (6200 - 3070.18) / 3385.66

= 1 + 3129.82 /3385.66

= 1 + .92

= 1.92 years

b)Discounted payback period if initial cost is 8300 = 2 + (8300 - 6455 ) / 3779.84

= 2 + 1845 /3779.84

= 2 +0.49 = 2.49 years

c) Discounted payback period if initial cost is 11300 = 3 +( 11300 - 10235.67 ) / 2841.99

= 3 + 1064.33 / 2841.99

= 3 + 0.37 = 3.37 years