An investment project has annual cash inflows of $4,900, $3,400, $4,600, and $3,

Question

An investment project has annual cash inflows of $4,900, $3,400, $4,600, and $3,800, 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 $5,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period ______ years

What is the discounted payback period for these cash flows if the initial cost is $7,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period ______ years

What is the discounted payback period for these cash flows if the initial cost is $10,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period ______ years

Explanation / Answer

1.

Discounted payback period = last negative discounted cash flow period year + (last negative cumulative discounted cash flow / next period discounted cash flow)

Discounted payback period = 1+ (863.72 / 2662.70) = 1.32 years

2.

Discounted payback period = last negative discounted cash flow period year + (last negative cumulative discounted cash flow / next period discounted cash flow)

Discounted payback period = 2+ (301.02 / 3188.03) = 2.09 years

3.

Discounted payback period = last negative discounted cash flow period year + (last negative cumulative discounted cash flow / next period discounted cash flow)

Discounted payback period = 3+ (112.99 / 2330.61) = 3.05 years

Please note that we ignore negative sign for the cumulative discounted cash flow as done in every calculation

Year Cash Flow Discount rate Present value factor Discounted Cash flow Cumulative discounted cash flow n CF PV = 1/(1+ r) ^n CF* PV 0 -5200 13% 1.00 -5200.00 -5200.00 1 4900 13% 0.88 4336.28 -863.72 2 3400 13% 0.78 2662.70 1798.98 3 4600 13% 0.69 3188.03 4987.01 4 3800 13% 0.61 2330.61 7317.62

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