Question

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 |

Answer #1

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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