Cash flows in the given year are:
Year 0:-12900
Year 1:3540
Year 2:4560
Year 3:1900
Year 4:0
Year 5:1380
Given that the cost of capital=10%
Discounted cash flows:
Year 0:-12900/(1+10%)^0=-12900
Year 1:3540/(1+10%)^1=3218.181818
Year 2:4560/(1+10%)^2=3768.595041
Year 3:1900/(1+10%)^3=1427.498122
Year 4:0/(1+10%)^4=0
Year 5:1380/(1+10%)^5=856.8714258
Cumulative net cash flows:
Year 0:-12900
Year 1:3218.181818-12900=-9681.818182
Year 2:3768.595041-9681.818182=-5913.223141
Year 3:1427.498122-5913.223141=-4485.725019
Year 4:0-4485.725019=-4485.725019
Year 5:856.8714258-4485.725019=-3628.853593
We see that the project does not pay back. As given in the question, we need to enter 0 (in the box) if the project does not pay back.
Answer: Discounted payback period = 0 Years
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