Question

Your company is considering the acquisition of a machine with an initial investment of $50,000, that will generate the following after-tax cash flows:

year 1 $25,000

year 2 $24,000

year 3 $23,000

If the company tax rate is 20% and the cost of capital is 10%, What is the discounted payback period?

Seleccione una:

2.59 years

2.04 years

2.36 years

2.47 years

2.95 years

2.65 years

Answer 1

	Year	Cash flow(a)	Discounting Factor	Discounting Factor(b)	Present Value (a)*(b)	Cumulative PV
	0	50000	1	1.0000	50000.00	-50000.00
	1	25000	=1/(1+8%)^1	0.9259	23148.15	-26851.85
	2	24000	=1/(1+8%)^2	0.8573	20576.13	-6275.72
	3	23000	=1/(1+8%)^3	0.7938	18258.14	11982.42
rate - 10%
tax - 20%	after tax rate - 10*(1-.2)	8%
			Discounted Payback Period = Year before the discounted payback period occurs +( Cumulative cash flow in year before recovery / Discounted cash flow in year after recovery)
				=2+(6275.72/18258.14)
				2.34 years