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An investment project has annual cash inflows of $3,700, $4,600, $5,800, and $5,

ID: 2733737 • Letter: A

Question

An investment project has annual cash inflows of $3,700, $4,600, $5,800, and $5,000, and a discount rate of 13 percent. What is the discounted payback period for these cash flows if the initial cost is $6,400? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Discounted payback period?

What is the discounted payback period for these cash flows if the initial cost is $8,500? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Discounted payback period ?

What is the discounted payback period for these cash flows if the initial cost is $11,500? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Discounted payback period ?

Explanation / Answer

Annual Cashflow Year 1 = $3,700

Discounted Cashflow Year 1 = 3700/1.13 = 3,274.34

Annual Cashflow Year 2 = $4,600

Discounted Cashflow Year 2 = 4600/1.13^2 = 3,602.47

Annual Cashflow Year 3 = $5,800

Discounted Cashflow Year 3 = 5800/1.13^3 = 4,019.69

Annual Cashflow Year 4 = $5,000

Discounted Cashflow Year 4 = 5000/1.13^4 = 3,066.59

Answer 1.

Initial Cost = $6,400

Discounted Payback period = 1 + 3125.66/3602.47

= 1.87 Years

Answer 2.

Initial Cost = $8,500

Discounted Payback period = 2 + 1623.19/4019.69

= 2.40 Years

Answer 3.

Initial Cost = $11,500

Discounted Payback period = 3 + 603.5/3066.59

= 3.20 Years

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