Question

Calculate the Discounted Payback (DPBK) for the following Cash Flows using a Discount Rate of 12%.

Yr	CF
0	$ (100.00)
1	$      50.00
2	$      35.00
3	$      25.00
4	$      20.00
5	$      40.00

	a.	3.51 Yrs
	b.	4.20 yrs
	c.	3.00
	d.	2.60 years
	e.	3.76 years
	f.	4.21

Answer 1

Discounted Payback Period

Year	Cash Flows ($)	Present Value Factor at 12%	Discounted Cash Flow ($)	Cumulative net discounted Cash flow ($)
0	-100.00	1.00000	-100.00	-100.00
1	50.00	0.89286	44.64	-55.36
2	35.00	0.79719	27.90	-27.46
3	25.00	0.71178	17.79	-9.66
4	20.00	0.63552	12.71	3.05
5	40.00	0.56743	22.70	25.75

Discounted Payback Period = Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year)

= 3 Year + ($9.66 / $12.71)

= 3 Year + 0.76 Years

= 3.76 Years

“Hence, the Discounted Payback Period for the above cash flows will be (e). 3.76 Years”

NOTE    

The Formula for calculating the Present Value Factor is [1/(1 + r)ⁿ], Where “r” is the Discount/Interest Rate and “n” is the number of years.