Question

An investment project has annual cash inflows of $5,800, $6,900, $7,700, and $9,000, and a discount rate of 14 percent. Required: What is the discounted payback period for these cash flows if the initial cost is $9,000? (Do not round your intermediate calculations.)

1.24 years

2.49 years

3.48 years

0.74 years

1.74 years

Answer #1

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 1+ (3912.2807 / 5309.32594644506)

= 1.736869565 Years

Hence the correct answer is **1.74 years**

Notes:

Year | Cash Flow | Discounting Factor(14%) | Present Value (Cash Flow * Discounting Factor) | Cumulative Cash Flow |

0 | -9,000 | 1 | -9000 | -9,000 |

1 | 5,800 | 0.877192982 | 5,087.71929824561 | -3,912.2807 |

2 | 6,900 | 0.769467528 | 5,309.32594644506 | 1,397.0452 |

3 | 7,700 | 0.674971516 | 5,197.28067475553 | 6,594.3259 |

4 | 9,000 | 0.592080277 | 5,328.72249633171 | 11,923.0484 |

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