Question

An investment project costs $23327 and has annual cash flows of $10533 for six years. What is the discounted payback period if the discount rate is 5 percent?

Answer 1

Year	Cash flows	Present value@5%	Cumulative Cash flows
0	(23327)	(23327)	(23327)
1	10533	10031.43	(13295.57)
2	10533	9553.74	(3741.83)
3	10533	9098.80	5356.97
4	10533	8665.53	14022.50
5	10533	8252.88	22275.38
6	10533	7859.89	30135.27(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+(3741.83/9098.8)

=2.41 years(Approx).