Question

Find the discounted payback period for the following cash flows.

Year	Cash Flow
0	-319,000
1	122,000
2	133,000
3	135,000
4	395,000

Assume a discount rate of 13%.

Round your answer to two decimal places.

Answer 1

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

discounted cash flow of year 1 = 122000/1.13 = 107964.60

discounted cash flow of year 2 = 133000/1.13^2 = 104158.51

discounted cash flow of year 3= 135000/1.13^3 = 93561.77

discounted cash flow year 4= 395000/1.13^4 = 242260.90

amount to be recovered after year 3

= 319000 - 107964.60 - 104158.51 - 93561.77

= 13315.12

hence

discounted payback period = 3 + 13315.12/242260.90

= 3.06 years