An investment project costs $10,000 and has annual cash flows of $2,970 for six

Question

An investment project costs $10,000 and has annual cash flows of $2,970 for six years.

   

What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

  

  

What is the discounted payback period if the discount rate is 6 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

  

  

What is the discounted payback period if the discount rate is 20 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

   

9.

An investment project costs $10,000 and has annual cash flows of $2,970 for six years.

Explanation / Answer

1)

When the discount rate is zero, the discounted payback is equal to the payback period.

Discounte payback period = $10,000 / $2,970 = 3.367 years = 3 years 134 days

2)

Therefore, the discounted payback period = 3 years ($2,061 / $2,353)*365 days = 3 years and 319 days.

3)

The discount pay back period is greater than 6 years as the cummulative cash flows is still negative after the six years.

Year Cash Flows Discount @ 6% Discounted cash flows Cummulative cash flows 0 -10000 1 -10000 -10000 1 2970 0.943396226 2801.886792 -7198.11321 2 2970 0.88999644 2643.289427 -4554.82378 3 2970 0.839619283 2493.669271 -2061.15451 4 2970 0.792093663 2352.51818 291.3636697 5 2970 0.747258173 2219.356773 2510.720443 6 2970 0.70496054 2093.732805 4604.453248

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.