An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,

Question

An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, for the next four years, respectively. The discount rate is 14 percent.

What is the discounted payback period for these cash flows if the initial cost is $5,700? (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 $7,800? (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 $10,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, for the next four years, respectively. The discount rate is 14 percent.

Explanation / Answer

Solution-a

Value today of Year 1 cash flow = $4,400 / 1.14 = $3,859.65

Value today of Year 2 cash flow = $3,900 / 1.142= $3,000.92

Value today of Year 3 cash flow = $5,100 / 1.143= $3,442.35

Value today of Year 4 cash flow = $4,300 / 1.144= $2,545.95

Discounted payback = 1 + ($5,700 – $3,859.65) / $3,000.92

Discounted payback = 1.61 years

Solution-b

Discounted payback = 2 + ($7,800– $3,859.65– $3,000.92) / $3,442.35

Discounted payback = 2.27 years

Solution-c

Discounted payback = 3 + ($10,800-$3,859.65- $3,000.92-$3,442.35) / $2,545.95

Discounted payback = 3.20 years

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