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A firm with a 13 percent cost of capital is considering a project for this year’s...

A firm with a 13 percent cost of capital is considering a project for this year’s capital budget. The project’s expected after-tax cash flows are as follows:

Year:

0

1

2

3

4
Cash flow:

-$8,000

$3,100

$3,000

$2,700

$3,900


Calculate the project’s discounted payback period.

a.

3.50 years
b.

4.00 years
c.

3.43 years
d.

3.57 years
e.

3.00 years

Solutions

Expert Solution

Ans c) 3.43 years

Year Project Cash Flows (i) DF@ 13% (ii) PV of Project A ( (i) * (ii) ) Cumulative Cash Flow
0 -8000 1                             (8,000.00)                (8,000.00)
1 3100 0.885                              2,743.36                (5,256.64)
2 3000 0.783                              2,349.44                (2,907.20)
3 2700 0.693                              1,871.24                (1,035.96)
4 3900 0.613                              2,391.94                 1,355.98
NPV                              1,355.98
Discounted Payback Period = 3 years + 1035.96 / 2391.94
3.43 years

jeff jeffy answered 1 year ago
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