•A project has an initial cost of $18,000 and is expected to produce cash inflows of...
•A project has an initial cost of $18,000 and is expected to produce cash inflows of $7,000, $9,000, and $7,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 12 percent?
Homework Answers
| Year | Cash flows | Present value@12% | Cumulative Cash flows |
| 0 | (18000) | (18000) | (18000) |
| 1 | 7000 | 6250 | (11750) |
| 2 | 9000 | 7174.74 | (4575.26) |
| 3 | 7500 | 5338.35 | 763.09(Approx). |
Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=2+(4575.26/5338.35)
=2.86 years(Approx).
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