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A company considers investing in a project that will cost $80 million up front. The company...

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?

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Expert Solution

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

jeff jeffy answered 10 months ago
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