Project K costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and...
Project K costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback? Round your answer to two decimal places.
Homework Answers
| Project | Discount rate= | 0.08 | ||||
| Year | Cash flow stream | Cumulative cash flow | Discounting factor | Discounted CF | Cumulative cash flow | Cumulative discounted CF |
| 0 | -45000 | -45000 | 1 | -45000 | -45000 | -45000 |
| 1 | 11000 | -34000 | 1.08 | 10185.19 | -34000 | -34814.8 |
| 2 | 11000 | -23000 | 1.1664 | 9430.727 | -23000 | -25384.1 |
| 3 | 11000 | -12000 | 1.259712 | 8732.155 | -12000 | -16651.9 |
| 4 | 11000 | -1000 | 1.360489 | 8085.328 | -1000 | -8566.6 |
| 5 | 11000 | 10000 | 1.469328 | 7486.415 | 10000 | -1080.19 |
| 6 | 11000 | 21000 | 1.586874 | 6931.866 | 21000 | 5851.676 |
| 7 | 11000 | 32000 | 1.713824 | 6418.394 | 32000 | 12270.07 |
| 8 | 11000 | 43000 | 1.85093 | 5942.958 | 43000 | 18213.03 |
| Discounted payback period is the time by which discounted cashflow cover the intial investment outlay | ||||||
| this is happening between year 5 and 6 | ||||||
| therefore by interpolation payback period = 5 + (0-(-1080.19))/(5851.68-(-1080.19)) | ||||||
| 5.16 Years | ||||||
| Where | ||||||
| Discounting factor =(1 + discount rate)^(corresponding year) | ||||||
| Discounted Cashflow=Cash flow stream/discounting factor | ||||||
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