An investment project has annual cash inflows of $5,200, $3,000, $4,300, and $3,

ID: 2710515 • Letter: A

Question

An investment project has annual cash inflows of $5,200, $3,000, $4,300, and $3,500, for the next four years, respectively. The discount rate is 13 percent.

What is the discounted payback period for these cash flows if the initial cost is $4,900? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the discounted payback period for these cash flows if the initial cost is $7,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the discounted payback period for these cash flows if the initial cost is $10,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the discounted payback period for these cash flows if the initial cost is $4,900? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

If Initial cost $4900:-

Year

Cash inflow

Present value

factors @ 13%

Discounted cash inflow

@ 13 %

Cumulative Discounted cash inflow

5200

0.885

4602

3000

0.783

2349

6951

4300

0.693

2980 (Approx)

9931

3500

0.613

2145 (Approx)

12076

12076

Discounted Pay Back Period = 1 + (4900 – 4602) /2349

= 1.13 Years (approx)

If Initial cost $7000:-

Discounted Pay Back Period = 2 + (7000 – 6951) /2980

= 2.02 Years (approx)

If Initial cost $10000:-

Discounted Pay Back Period = 3 + (10000 – 9931) / 2145

= 3.02 Years (approx)