Question

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 8 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:	–$1,000	$480	$480	$520	$300	$100

Answer 1

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 2 + ( 144.03 / 413)

= 2.34874092 Years

Hence the correct answer is 2.35 Years

Note :

	Cash Flow	Discounting Factor ( 8%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow
0	-1,000	1	-1,000	-1,000
1	480	0.925925926	444	-555.56
2	480	0.85733882	412	-144.03
3	520	0.793832241	413	268.76
4	300	0.735029853	221	489.27
5	100	0.680583197	68	557.33