Question

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

Project C
Time:	0	1	2	3	4	5
Cash flow	–$2,400	$1,040	$900	$940	$580	$380

  

Discounted payback period

years

  

Should the project be accepted or rejected?

	Accepted
	Rejected

Answer 1

year	Description	Cash Flows	CV Factor at 7%	Discounted Cash flows	Cumulative Discounted Cash flows
0	Intial cost of Equipment	-2,400	1.00000	-2,400	-2,400
1	Cash Inflow	1,040	0.93458	972	-1,428
2	Cash Inflow	900	0.87344	786	-642
3	Cash Inflow	940	0.81630	767
4	Cash Inflow	580	0.76290	442
5	Cash Inflow	380	0.71299	271
Discounted Payback Period = 2 years + (642/767) = 2.84 years
Project can be accepted as it is less than maximum allowable discounted payback period