An investment project costs $10,000 and has annual cash flows of $2,950 for six

Question

An investment project costs $10,000 and has annual cash flows of $2,950 for six years. What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years What is the discounted payback period if the discount rate is 4 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years What is the discounted payback period if the discount rate is 21 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years

Explanation / Answer

Answer 1 : Discount Pay back period at Zero percent

Discount pay back period will be 3 + (1150/2950) = 3.39 years

Answer 2 : Discount Pay back period at 4 percent

Discount pay back period will be 3 + (1813.48/2950) = 3.61 years

Answer 2 : Discount Pay back period at 21 percent

Discount pay back period will be 0 years. It never pay back in 6 years period.

Year (n) Cash flow PV factor at 0% Discounted Cash flow Cumulative Discounted cash flow 0 -10000 1 -10000 -10000 1 2950 1 2950 -7050 2 2950 1 2950 -4100 3 2950 1 2950 -1150 4 2950 1 2950 1800 5 2950 1 2950 4750 6 2950 1 2950 7700

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