Question

Kerin Enterprises has a project which has the following cash flows:

YEAR CASH FLOWS

0-( -R200 000)

1- 50 000

2- 100 000

3- 150 000

4- 40 000

The required rate of return is 10%. What is the project’s discounted payback period (DPB)? Hint: Use rounded numbers, i.e. no decimal points.

Answer 1

Year	Cash flow	× discount rate	Discounted cash flow	Cumulative present worth	Balance to be recovered
0	$      (200,000)	1.00000	$      (200,000.00)	$                         -	$      200,000.00
1	$          50,000	0.90909	$          45,454.55	$           45,454.55	$      154,545.45
2	$       100,000	0.82645	$          82,644.63	$         128,099.17	$         71,900.83
3	$       150,000	0.75131	$        112,697.22	$         240,796.39	$                       -
4	$          40,000	0.68301	$          27,320.54	$         268,116.93	$                       -
Capital is recovered fully in year	3
Discounted pay back period is	2 + 71900.83 / 112697.22	2.64

Discounted payback period is 3 years or 2 years, 7 months, 20 days.