An investment project costs $15,300 and has annual cash flows of $3,500 for six years. ...

An investment project costs $15,300 and has annual cash flows of $3,500 for six years.

Required :
(a)	What is the discounted payback period if the discount rate is zero percent?

	(Click to select)4.724.284.024.464.37

(b)	What is the discounted payback period if the discount rate is 3 percent?

	(Click to select)4.414.664.855.114.76

(c)	What is the discounted payback period if the discount rate is 21 percent?

	(Click to select)3.353.98Never4.351.02

Solutions

Expert Solution

We first computed the discounted cash flows as cash flows/ (1+rate)^n

Then we find the cumulative discounted cash flows

Discounted payback = Year in which Discounted Cumulative CF is last negative -(Last negative discounted cumulative CF/ CF of next year)

		0%		3%		21%
Year	cash flows	Discounted CF	Cumulative DCF	Discounted CF	Cumulative DCF	Discounted CF	Cumulative DCF
0	-15300	-15300	-15300	-15300	-15300	-15300	-15300
1	3500	3500	-11800	3398.058	-11901.9	2892.562	-12407.4
2	3500	3500	-8300	3299.086	-8602.86	2390.547	-10016.9
3	3500	3500	-4800	3202.996	-5399.86	1975.659	-8041.23
4	3500	3500	-1300	3109.705	-2290.16	1632.776	-6408.46
5	3500	3500	2200	3019.131	728.9752	1349.402	-5059.05
6	3500	3500	5700	2931.195	3660.17	1115.208	-3943.85

Discounted payback			4.37		4.76		Never

WORKINGS

jeff jeffy answered 8 months ago

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