Question

Find the discounted payback in years (to the nearest tenths place) for the following cash flow with a WACC of 12%. Hint: interpolation must be used and I have started the table for you.

Time Period                Cash Flow                   PV of Cash Flow        Cumulative

         0                              -100                              -100                           -100

         1                                 40                             35.71                        -64.29

         2                                 50                                    ?                                 ?

         3                                 20                                    ?                                 ?

            4 70 ? ?   

Answer 1

Time period	Cash flow	PV Factor@12%	PV of cash flow	Cumulative
0	-100	1	-100	-100.00
1	40	0.89	35.71	-64.29
2	50	0.80	39.86	-24.43
3	20	0.71	14.24	-10.19
4	70	0.64	44.49	34.30
Discounted Pay back = A+(B/C)
A= last period with negative cumulative cash flow					3
B= Absolute value of discounted cumulative cash value at end of period A					10.19
C= Discounted cash flow after period A					44.49
DPB = 3 + (10.190/44.49)
DPB =	3.22	years