An investment project has annual cash inflows of $3,400, $4,300, $5,500, and $4,

Question

An investment project has annual cash inflows of $3,400, $4,300, $5,500, and $4,700, and a discount rate of 13 percent.

What is the discounted payback period for these cash flows if the initial cost is $6,100? (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 $8,200? (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 $11,200? (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 $3,400, $4,300, $5,500, and $4,700, and a discount rate of 13 percent.

Explanation / Answer

PV of first cashflow = $3,400 / (1 + 13%)

= $3,008.85

PV of second cashflow = $4,300 / (1 + 13%)2

= $3,367.53

PV of third cashflow = $5,500 / (1 + 13%)3

= $3,811.78

PV of fourth cashflow = $4,700 / (1 + 13%)4

= $2,882.60

If the initial cost is $6,100, then

Discounted payback period = [1 + ($6,100 - $3,008.85) / $3,367.53] years

= 1.92 years

If the initial cost is $8,200, then

Discounted payback period = [2 + ($8,200 - $3,008.85 - $3,367.53) / $3,811.78] years

= 2.48 years

If the initial cost is $11,200, then

Discounted payback period = [3 + ($11,200 - $3,008.85 - $3,367.53 - $3,811.78) / $2,882.60] years

= 3.35 years

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