Question

an investment project has annual cash inflows of 4,800,5,900,6,700 and 8,000 for the next four years respectively and a discount rate of 15 percent.

what is the discounted payback period for these cash flows if the intiial cost is 8000

Answer 1

Year	Cash flow stream	Cumulative cash flow	Discounting factor	Discounted cash flows project	Cumulative discounted CF
0	-8000	-8000	1	-8000	-8000.00
1	4800	-3200	1.15	4173.913043	-3826.09
2	5900	2700	1.3225	4461.247637	635.16
3	6700	9400	1.520875	4405.358757	5040.52
4	8000	17400	1.74900625	4574.025965	9614.55

Discounted payback period is the time by which discounted cashflow cover the intial investment outlay

this is happening between year 1 and 2

therefore by interpolation payback period = 1 + (0-(-3826.09))/(635.16-(-3826.09))

1.86 Years

Where

Discounting factor =(1 + discount rate)^(corresponding year)

Discounted Cashflow=Cash flow stream/discounting factor