1. Payback period a.) Project K costs $40,000, its expected cash inflows are $10
ID: 2620529 • Letter: 1
Question
1. Payback period
a.) Project K costs $40,000, its expected cash inflows are $10,000 per year for 7 years, and its WACC is 14%. What is the project's payback? Round your answer to two decimal places.
________ years
b.) Project K costs $50,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project's discounted payback? Round your answer to two decimal places.
________ years
*** Will you guys please show me how you got your answer mathmatically rather than through excel - this will help me better understand how to solve for each. Thank you!
Explanation / Answer
a.Payback period=Initial investment/Annual cash flows
=(40000/10000)=4 years.
b.
Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=6+(663.11/5428.19)
=6.12 years(Approx).
Year Cash flows Present value@12% Cumulative Cash flows 0 (50000) (50000) (50000) 1 12000 10714.29 (39285.71) 2 12000 9566.33 (29719.38) 3 12000 8541.36 (21178.02) 4 12000 7626.22 (13551.80) 5 12000 6809.12 (6742.68) 6 12000 6079.57 (663.11) 7 12000 5428.19 4765.08 8 12000 4846.60 9611.68(Approx).Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.