An investment project has annual cash inflows of $6,600, $7,700, $8,500, and $9,800, and a discount rate of 11 percent. |
Required:
What is the discounted payback period for these cash flows if the initial cost is $9,500? |
Year | Cash flows | Present value@11% | Cumulative Cash flows |
0 | (9500) | (9500) | (9500) |
1 | 6600 | 5945.95 | (3554.05) |
2 | 7700 | 6249.49 | 2695.44 |
3 | 8500 | 6215.13 | 8910.57 |
4 | 9800 | 6455.56 | 15366.13(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).
=1+(3554.05/6249.49)
=1.57 years(Approx).
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