Question

# A project has the following total (or net) cash flows.                ________________________________________

A project has the following total (or net) cash flows.

________________________________________

Year         Total (or net) cash flow

________________________________________

1 \$50,000
2 70,000
3 80,000
4 100,000
_______________________________________

The required rate of return on the project is 13 percent. The initial investment (or initial cost or initial outlay) of the project is \$100,000.
a) Find the (regular) payback period of the project.
b) Compute the discounted payback period of the project.

pay back period is timee in which we receive our investment

investment is 100000

 year cash flows cumulative cash flows discount factor @13% dcf cumulative dcf 1 50000 50000 0.8849 44245 44245 2 70000 120000 0.7831 54817 93972 3 80000 200000 0.693 55440 138600 4 100000 300000 0.6133 61330 183990

calculation of payback period

in year 1 we recover 50000 and we are going to recover 50000 in year 2

= 1+50000/70000 =1.7142 years

calculation of disounted payback period

= 2+6028/55440 =2.1087 years

pay back period do not take time value of money where as discounted pay back uses time value of money

#### Earn Coins

Coins can be redeemed for fabulous gifts.