Question

King Fisher Aviation is evaluating an investment project with the following case flows:

$6,000

$5,500

$7,000

$8,000

Discount rate 14 percent

What is the discounted payback period for these cash flows if the initial cost is 15,000? What if the initial cost is $12,000? What if the cost is $16,000?

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Answer #1

I have assumed that cash flows have been received at the the end of the first year so the rate of discounting has been applied from the first year-

Discounted Cashback period will be calculated in how many years the initial cash outlays will be equated with the total discounted present value of cash inflows.

Year | Cash flows | Discounting @14% | Discounted present value | Cumulative DCF |

1 | 6000 | .8771 | 5262.6 | 5262.6 |

2 | 5500 | .7694 | 4231.7 | 9494.3 |

3 | 7000 | .6749 | 4724.3 | 14218.6 |

4 | 8000 | .5921 | 4736.8 | 18955.4 |

**1.** Discounted payback period if initial
investment is $15000

= 3 years +[(15000-14218.6)/4736.8]

= 3 years+.1649

**=3.1649 Years**

**2.** Discounted payback period if initial
investment is $ 12000

= 2 years+[( 12000-9494.3)/4724.3]

=2 years+.5303

= **2.5303 Years**

**3.** Discounted payback period if initial
investment is $ 16000

= 3 years+[( 16000-14218.6)/4736.8]

= 3 years+.376

= **3.376 years**

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