Question

Project L requires an initial outlay at t = 0 of $50,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 12%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places. years

Answer 1

Discounted Payback period is the period in which initial investment is recovered after considering the time value of money.

Year	Opening Bal	CF	PVF @12%	Disc CF	Clsoing Bal
1	$ 50,000.00	$ 12,000.00	$      0.89	$ 10,714.29	$ 39,285.71
2	$ 39,285.71	$ 12,000.00	$      0.80	$   9,566.33	$ 29,719.39
3	$ 29,719.39	$ 12,000.00	$      0.71	$   8,541.36	$ 21,178.02
4	$ 21,178.02	$ 12,000.00	$      0.64	$   7,626.22	$ 13,551.81
5	$ 13,551.81	$ 12,000.00	$      0.57	$   6,809.12	$    6,742.69
6	$   6,742.69	$ 12,000.00	$      0.51	$   6,079.57	$        663.11
7	$      663.11	$ 12,000.00	$      0.45	$   5,428.19	$   -4,765.08
8	$ -4,765.08	$ 12,000.00	$      0.40	$   4,846.60	$   -9,611.68
9	$ -9,611.68	$ 12,000.00	$      0.36	$   4,327.32	$ -13,939.00

Disc Payback Period = Year in which least +ve closing Bal + [ Clsoing Bal at that Year / Disc CF next Year ]

= 6 + [ 663.11 / 5428.19 ]

= 6 + 0.12

= 6.12 Years