Question

An investment project costs $24706 and has annual cash flows of $10692 for six years. What is the discounted payback period if the discount rate is 5 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

Answer 1

Year	Cash flows	Present value@5%	Cumulative Cash flows
0	(24706)	(24706)	(24706)
1	10692	10182.86	(14523.14)
2	10692	9697.96	(4825.18)
3	10692	9236.15	4410.97
4	10692	8796.33	13207.3
5	10692	8377.46	21584.76
6	10692	7978.54	29563.3(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+(4825.18/9236.15)

=2.52 years(Approx).