Question

# Calculating Discounted Payback [LO3] An investment project has annual cash inflows of \$2,800, \$3,700, \$5,100, and...

Calculating Discounted Payback [LO3] An investment project has annual cash inflows of \$2,800, \$3,700, \$5,100, and \$4,300, for the next four years, respectively. The discount rate is 14 percent. What is the discounted payback period for these cash flows if the initial cost is \$5,200? What if the initial cost is \$5,400? What if it is \$10,400?

Initial cost is \$5,200?

 Year Cash Flow PV factor PV Cumulative PV 0 -5200 1.0000 -5,200.00 -5,200.00 1 2800 0.8772 2,456.14 -2,743.86 2 3700 0.7695 2,847.03 103.17 3 5100 0.6750 3,442.35 3,545.52 4 4300 0.5921 2,545.95 6,091.47

=+2743.86/2847.03+1

=1.96 years

initial cost is \$5,400

 Year Cash Flow PV factor PV Cumulative PV 0 -5400 1.0000 -5,400.00 -5,400.00 1 2800 0.8772 2,456.14 -2,943.86 2 3700 0.7695 2,847.03 -96.83 3 5100 0.6750 3,442.35 3,345.52 4 4300 0.5921 2,545.95 5,891.47

=+96.83/3345.52+2

=2.03

What if it is \$10,400?

 Year Cash Flow PV factor PV Cumulative PV 0 -10400 1.0000 -10,400.00 -10,400.00 1 2800 0.8772 2,456.14 -7,943.86 2 3700 0.7695 2,847.03 -5,096.83 3 5100 0.6750 3,442.35 -1,654.48 4 4300 0.5921 2,545.95 891.47

=+1654.48/2545.95+3

=3.65

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