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A 10-year project has a cost of $500,000 and has annual cash flows of $100,000 in...

A 10-year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-10. The company's required rate is 8% c.m. Given this information, calculate the discounted payback of the project?

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Answer #1

CF0 = ($5,00,000)   

CF1= $1,00,000

CF2= $1,00,000

CF3= $1,00,000

CF4= $1,00,000

CF5= $1,00,000

CF6 = $1,00,000

CF7 = $1,00,000

Discounted cash flows

Year 1 : $92,592.5926

Year 2: $85,733.8820

Year 3 : $79,383.2241

Year 4 : $73,502.9853

Year 5: $68,058.3197

Year 6: $63,016.9627

$462287.9664 ( Cumulative amount till Year 6)

CF7 = $58,349.0395

So, the discounted payback period is :

= 6 + (5,00,000 - $462287.9664) / $58,349.0395

= 6 + 0.6463

= 6.65 Years ( rounded off to two decimal places)

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