Question

#31 Nugent Communication Corp. is investing $9,365,000 in new technologies. The company expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and a constant amount for four more years. What is the discounted payback period for the project assuming a discount rate of 12 percent? Show all your work.

0	-$9,365,000
1	2,265,433
2	4,558,721
3	3,378,911
4	1,150,000
5	1,150,000
6	1,150,000
7	1,150,000

Answer 1

Calculation of discounted payback period is shown below
Year	Cash flow	Discount factor @ 12%	Present value	Cumulative cash flow
0	-9365000	1.00000	-$9,365,000	-$9,365,000
1	2265433	0.89286	$2,022,708	-$7,342,292
2	4558721	0.79719	$3,634,184	-$3,708,107
3	3378911	0.71178	$2,405,042	-$1,303,065
4	1150000	0.63552	$730,846	-$572,220
5	1150000	0.56743	$652,541	$80,321
6	1150000	0.50663	$582,626	$662,947
7	1150000	0.45235	$520,202	$1,183,149
Discounted payback period	4 years + (572220/652541)
Discounted payback period	4.88
Thus, discounted payback period is 4.88 years