Mr. Quixote is considering an investment in alternative energy. He estimates tha

Question

Mr. Quixote is considering an investment in alternative energy. He estimates that the project has annual cash inflows of $5,100, $3,200, $4,400, and $3,600, for the next four years, respectively. The discount rate is 15 percent.

   

What is the discounted payback period for these cash flows if the initial cost is $7,100? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Mr. Quixote is considering an investment in alternative energy. He estimates that the project has annual cash inflows of $5,100, $3,200, $4,400, and $3,600, for the next four years, respectively. The discount rate is 15 percent.

Explanation / Answer

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).

=2+(245.56/2893.07)

=2.08 years(Approx).

Year Cash flows Present value@15% Cumulative Cash flows 0 (7100) (7100) (7100) 1 5100 4434.78 (2665.22) 2 3200 2419.66 (245.56) 3 4400 2893.07 2647.51 4 3600 2058.31 4705.82(Approx)

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