Question

# An investment project has annual cash inflows of \$5,800, \$6,900, \$7,700, and \$9,000, and a discount...

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

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