An investment project has annual cash inflows of $4,000, $4,900, $6,100, and $5,

Question

An investment project has annual cash inflows of $4,000, $4,900, $6,100, and $5,300, and a discount rate of 13 percent.

What is the discounted payback period for these cash flows if the initial cost is $6,700? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the discounted payback period for these cash flows if the initial cost is $8,800? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the discounted payback period for these cash flows if the initial cost is $11,800? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

An investment project has annual cash inflows of $4,000, $4,900, $6,100, and $5,300, and a discount rate of 13 percent.

Explanation / Answer

Disc rate 13 Cumulative inflows 0 1 1 0.884956 4000 3539.823 3539.823009 2 0.783147 4900 3837.419 7377.241757 3 0.69305 6100 4227.606 11604.84775 4 0.613319 5300 3250.589 14855.437 7377.24 - 6700 = 677.24 cash required in year 2 = 3837.41 - 677.24 = 3160.17 time required in year 2 = 3160.17 / 3837.41 = 0.82 Discounted payback period = year 1 + 0.82 = 1.82 years initial cost = 8800 11604.85 - 8800 = 2804.85 cash required in year 3 = 4227.60 - 2804.85 = 1422.75 time required in year 3 = 1422.75 / 4227.60 = 0.34 Discounted payback period = year 1 + year 2 + 0.34 = 2.34 years initial cost = 11800 14855.44 - 8800 = 3055.44 cash required in year 4 = 3250.59 - 3055.44 = 195.15 time required in year 4 = 195.15 / 3250.59 = 0.06 Discounted payback period = year 1 + year 2 + year 3 + 0.06 = 3.06 years

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