Question

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project C
Time:	0	1	2	3	4	5
Cash flow:	–$2,600	$1,120	$960	$1,000	$620	$420

Answer 1

As per the details given in the information-

PV of inflow is calculated on excel by formula-
=PV(rate,nper,pmt,fv)
Discount rate = 7%

Year	Cashflow	Pv of CF	Cummulative PV
0	-2600	-2600	-2600
1	1120	1046.73	1046.73
2	960	838.50	1885.23
3	1000	816.30	2701.53
4	620	473.00	3174.52
5	420	299.45	3473.98

Discounted Payback period = 2 years + {(2600 - 1885.23) /816.30
Discounted payback period = 2.876 years

Maximum discounted payback period = 3 years
Company payback period = 2.876 years which is less than maximum payback period
2.876 < 3, company should accept the project

I hope this clear your doubt.

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