Question

An investment project costs $24668 and has annual cash flows of $10290 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	(24668)	(24668)	(24668)
1	10290	9800	(14868)
2	10290	9333.33	(5534.67)
3	10290	8888.89	3354.22
4	10290	8465.61	11819.83
5	10290	8062.48	19882.31
6	10290	7678.56	27560.87(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+(5534.67/8888.89)

=2.62 years(Approx).