Question

Moon Enterprises has a project which has the following cash flows:

Year	Cash Flow
0	-$500,000
1	150,000
2	200,000
3	350,000
4	140,000
5	225,000

The cost of capital is 14 percent. What is the project's discounted payback?

Question 5 options:

	3.10 years
	2.53 years
	2.91 years
	2.18 years
	2.64 years

Answer 1

Year	Cash flows	Present value@14%	Cumulative Cash flows
0	(500,000)	(500,000)	(500,000)
1	150,000	131,578.95	(368421.05)
2	200,000	153,893.51	(214,527.54)
3	350,000	236,240.03	21712.49
4	140,000	82891.24	104603.73
5	225000	116,857.95	221,461.68(Approx).

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=2+(214,527.54/236,240.03)

=2.91 years(Approx).