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Problem 11-5 Discounted payback Project K costs $45,000, its expected cash inflows are $11,000 per year...

Problem 11-5
Discounted payback

Project K costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback? Round your answer to two decimal places.

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Answer #1
Year Cash flows Present value@8% Cumulative Cash flows
0 (45000) (45000) (45000)
1 11000 10185.19 (34814.81)
2 11000 9430.73 (25384.08)
3 11000 8732.15 (16651.93)
4 11000 8085.33 (8566.6)
5 11000 7486.42 (1080.18)
6 11000 6931.87 5851.69(Approx)

This table would continue upto year 8.

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).

=5+(1080.18/6931.87)

=5.16 years(Approx).

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