1. Discount rate of 4%, the cash outflow for project A is: 2. Discount rate of 1
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Question
1. Discount rate of 4%, the cash outflow for project A is:
2. Discount rate of 12%, the cash outflow for project B is:
3. Discount rate of 20%, the cash outflow for project B is:
4. As the discount rate increased, the discount payback perioud (increase or decrease). The reason is that the future dollars are worth (more or less) in present value as the discount rate increases requiring (more or less) future dollars to recover the present value of the outlay.
20%. What do you notice about the payback period as the discount rate rises? Explain this relationship Cost Cash flow year 1 Cash flow year 2 Cash flow year 3 Cash flow year 4 Cash flow year 5 Cash flow year 6 $8,000 $2,857 $2,857 $2,857 $2,857 $2,857 $2,857 $90,000 $9,000 $18,000 $27,000 $36,000 $13,500 $0 With a discount rate of 4%, the cash outflow for project A is: (Select the best response.)Explanation / Answer
1. Discount rate of 4%, the cash outflow for project A is: $8000
4. As the discount rate increased, the discount payback perioud increase . The reason is that the future dollars are worth less in present value as the discount rate increases requiring more future dollars to recover the present value of the outlay.
Discounted Payback periods All amonuts in $ Project A Cash flow Discount factor @4% PV of Cash Flow @ 4% Discount factor @12% PV of Cash Flow @ 12% Discount factor @20% PV of Cash Flow @ 20% Cost 8,000 1.000 8,000 1.000 8,000 1.000 8,000 Cash Flow Tear 1 2,857 0.962 2,747 0.893 2,551 0.833 2,381 Cash Flow Tear 2 2,857 0.925 2,641 0.797 2,278 0.694 1,984 Cash Flow Tear 3 2,857 0.889 2,540 0.712 2,034 0.579 1,653 Cash Flow Tear 4 2,857 0.855 2,442 0.636 1,816 0.482 1,378 Cash Flow Tear 5 2,857 0.822 2,348 0.567 1,621 0.402 1,148 Cash Flow Tear 6 2,857 0.790 2,258 0.507 1,447 0.335 957 Discounted Payback period 3.029 3.627 4.438 Project B Cash flow Discount factor @4% PV of Cash Flow @ 4% Discount factor @12% PV of Cash Flow @ 12% Discount factor @20% PV of Cash Flow @ 20% Cost 90,000 1.000 90,000 1.000 90,000 1.000 90,000 Cash Flow Tear 1 9,000 0.962 8,654 0.893 8,036 0.833 7,500 Cash Flow Tear 2 18,000 0.925 16,642 0.797 14,349 0.694 12,500 Cash Flow Tear 3 27,000 0.889 24,003 0.712 19,218 0.579 15,625 Cash Flow Tear 4 36,000 0.855 30,773 0.636 22,879 0.482 17,361 Cash Flow Tear 5 13,500 0.822 11,096 0.567 7,660 0.402 5,425 Cash Flow Tear 6 - 0.790 - 0.507 - 0.335 - Discounted Payback period 4.895 Infinite Infinite1. Discount rate of 4%, the cash outflow for project A is: $8000
2. Discount rate of 12%, the cash outflow for project B is: $90,000 3. Discount rate of 20%, the cash outflow for project B is:$90,0004. As the discount rate increased, the discount payback perioud increase . The reason is that the future dollars are worth less in present value as the discount rate increases requiring more future dollars to recover the present value of the outlay.
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