Nugent Communication Corp. is investing $10,930,700 in new technologies. The com
ID: 2748591 • Letter: N
Question
Nugent Communication Corp. is investing $10,930,700 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $2,042,000 $5,514,000 $2,681,100 $995,500.
What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. Do not round discount factors. If discounted payback period exceeds life of the project, enter 0 for the answer.)
Explanation / Answer
Solution :
year
cash inflow
discount factor
Present value
cumulative Present value
1
2042000
0.909090909
1856363.636
1,856,363.64
2
5514000
0.826446281
4557024.793
6,413,388.43
3
2681100
0.751314801
2014350.113
8,427,738.54
4
995500
0.683013455
679939.8948
9,107,678.44
5
995500
0.620921323
618127.1771
9,725,805.61
6
995500
0.56447393
561933.7974
10,287,739.41
7
995500
0.513158118
510848.9067
10,798,588.32
PV OF INFLOW
10,798,588.32
PV OF OUTFLOW
10,930,700.00
The answer is zero since discounted payback period exceeds life of the project
year
cash inflow
discount factor
Present value
cumulative Present value
1
2042000
0.909090909
1856363.636
1,856,363.64
2
5514000
0.826446281
4557024.793
6,413,388.43
3
2681100
0.751314801
2014350.113
8,427,738.54
4
995500
0.683013455
679939.8948
9,107,678.44
5
995500
0.620921323
618127.1771
9,725,805.61
6
995500
0.56447393
561933.7974
10,287,739.41
7
995500
0.513158118
510848.9067
10,798,588.32
PV OF INFLOW
10,798,588.32
PV OF OUTFLOW
10,930,700.00
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