Question

# What is the discounted payback period for the investment project that has the following cash flows,...

What is the discounted payback period for the investment project that has the following cash flows, if the discount rate is 14 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 Year Cash Flows 0 -12233 1 4492 2 4951 3 5873 4 6995

Discounted Payback Period =

=( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Value of Cash Flow in the following year)]

= 3 + ( 518.907674696126/ 4141.60154020448)

= 3.12529154957541 Years

= 3.13 Years

Hence the correct answer is 3.13 Years

Note:

 Cash Flow Discounting Factor ( 14%) Present Value (Cash Flow * Discounting Factor) Cumulative Cash Flow (Present Value of Current Year+  Cumulative Cash Flow of Previous Year) 0 -12,233 1 -12,233.00 -12,233 1 4,492 0.87719298245614 3,940.35087719298 -8,292.649122807020 2 4,951 0.769467528470299 3,809.63373345645 -4,483.015389350570 3 5,873 0.674971516202 3,964.10771465444 -518.907674696126 4 6,995 0.59208027737019 4,141.60154020448 3,622.693865508350

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