In: Finance
A project has an initial cost of $350. The project has annual cash inflows of $200, $160, $100, and $150, for the next four years, respectively. The discount rate is 25%. What is the discounted payback period of the project?
a. the project never pays back
b. 1 year
c. 2 years
d. 3 years
e. 4 years
Answer:- Option (e):- 4 years as the discounted payback period is 3.59 years (Approx. 4 years)
Explanation:-
Discounted Payback Period Formula :-
=Year before the discounted payback period occurs + { Cumulative cash flow in year before recovery / Discounted cash flow in year after recovery }
Following is the excel sheet showing the calculation of discounted payback period:-
Following is the formula sheet of above excel sheet for easy understanding of the formulas used:-