Potable water is in short supply in many developing countries. To address this n
ID: 2461886 • Letter: P
Question
Potable water is in short supply in many developing countries. To address this need, two mutually exclusive water purification systems are being considered for implementation in a developing country. Doing nothing is not an option. The MARR is 8% per year. Calculate the discounted payback period for each of the two systems. Which system should be selected based on the payback period? The discounted payback period for System 1 is. (Round to one decimal place.) The discounted payback period for System 2 is. (Round to one decimal place.) Which system should be selected? Choose the correct answer below. System 1 System 2Explanation / Answer
System 1
1.08
Year
CashFlow
PV Factor @ 8%
PV
Cum Cash Flow
0
(160,000)
1
(160,000)
(160,000)
1
28,000
0.9259
25,926
(134,074)
2
28,000
0.8573
24,005
(110,069)
3
28,000
0.7938
22,227
(87,841)
4
28,000
0.7350
20,581
(67,260)
5
28,000
0.6806
19,056
(48,204)
6
28,000
0.6302
17,645
(30,559)
7
28,000
0.5835
16,338
(14,222)
8
28,000
0.5403
15,128
906
9
28,000
0.5002
14,007
14,913
10
48,000
0.4632
22,233
37,146
Discounted Payback Period= 7+ 14,222/28,000
7 + 0.51
=7.51 years
System 2
1.08
Year
CashFlow
PV Factor @ 8%
PV
Cum Cash Flow
0
(250,000)
1
(250,000)
(250,000)
1
40,000
0.9259
37,037
(212,963)
2
40,000
0.8573
34,294
(178,669)
3
40,000
0.7938
31,753
(146,916)
4
40,000
0.7350
29,401
(117,515)
5
40,000
0.6806
27,223
(90,292)
6
40,000
0.6302
25,207
(65,085)
7
40,000
0.5835
23,340
(41,745)
8
40,000
0.5403
21,611
(20,134)
9
40,000
0.5002
20,010
(124)
10
90,000
0.4632
41,687
41,563
Discounted Payback Period= 9+ 124/90,000
9 + 0.0014
=9.0014 years nearly 9 years
System 1 to be selected as payback period is less
System 1
1.08
Year
CashFlow
PV Factor @ 8%
PV
Cum Cash Flow
0
(160,000)
1
(160,000)
(160,000)
1
28,000
0.9259
25,926
(134,074)
2
28,000
0.8573
24,005
(110,069)
3
28,000
0.7938
22,227
(87,841)
4
28,000
0.7350
20,581
(67,260)
5
28,000
0.6806
19,056
(48,204)
6
28,000
0.6302
17,645
(30,559)
7
28,000
0.5835
16,338
(14,222)
8
28,000
0.5403
15,128
906
9
28,000
0.5002
14,007
14,913
10
48,000
0.4632
22,233
37,146
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