An investment of $1,748,000 today yields positive cash flows of $400,000 each year for years 1...

An investment of $1,748,000 today yields positive cash flows of $400,000 each year for years 1 through 10. MARR is 19%. Determine the DPBP of this investment.

Expert Solution

Discounted payback period (DPBP) is the time by when cumulative discounted cash flows becomes zero.

Year	Cash flow ($)	PV Factor @19%	Discounted Cash Flow ($)	Cumulative Discounted Cash Flow ($)
0	-17,48,000	1.0000	-17,48,000	-17,48,000
1	4,00,000	0.8403	3,36,134	-14,11,866
2	4,00,000	0.7062	2,82,466	-11,29,400
3	4,00,000	0.5934	2,37,366	-8,92,033
4	4,00,000	0.4987	1,99,468	-6,92,566
5	4,00,000	0.4190	1,67,620	-5,24,946
6	4,00,000	0.3521	1,40,857	-3,84,089
7	4,00,000	0.2959	1,18,367	-2,65,722
8	4,00,000	0.2487	99,468	-1,66,254
9	4,00,000	0.2090	83,587	-82,667
10	4,00,000	0.1756	70,241	-12,426
11	0	0.1476	0	-12,426

During project life of 10 years, cumulative discounted cash flow remains negative and never becomes zero. After year 10, project cash flow becomes zero, so cumulative discounted cash flow remains negative.

So this project does not have a valid discounted payback period.

Rahul Sunny answered 2 years ago

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