In: Finance
A company considers investing in a project that will cost $80 million up front. The company expects the project to generate the following cash flows over the next 4 years:
Year | Cash Flow (millions) |
1 | $40 |
2 | $30 |
3 | $20 |
4 | $50 |
The applicable discount rate is 10%. What is the project's discounted payback period?
Ans 3.11 years
Year | Project Cash Flows (i) | DF@ 10% (ii) | PV of Project A ( (i) * (ii) ) | Cumulative Cash Flow | |
0 | -80 | 1 | (80.00) | (80.00) | |
1 | 40 | 0.909 | 36.36 | (43.64) | |
2 | 30 | 0.826 | 24.79 | (18.84) | |
3 | 20 | 0.751 | 15.03 | (3.82) | |
4 | 50 | 0.683 | 34.15 | 30.33 | |
NPV | 30.33 | ||||
Discounted Payback Period = | 3 years + 3.82 / 34.15 | ||||
3.11 YEARS |