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 |

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