Question

An investment project costs $22864 and has annual cash flows of $9663 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	(22864)	(22864)	(22864)
1	9663	9202.86	(13661.14)
2	9663	8764.63	(4896.51)
3	9663	8347.26	3450.75
4	9663	7949.77	11400.52
5	9663	7571.21	18971.73
6	9663	7210.68	26182.41(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+(4896.51/8347.26)

=2.59 years(Approx).