Question

An investment project costs $15,800 and has annual cash flows of $3,300 for six years.

  

a. What is the discounted payback period if the discount rate is zero percent?

  

b. What is the discounted payback period if the discount rate is 4 percent?

  

c. What is the discounted payback period if the discount rate is 20 percent?

Answer 1

year cash flows cumulative discounted cash flows 0 -$15,800 $15,800 1 $3,300 -$12,500 2 $3,300 $9,200 3 $3,300 -$5,900 4 $3,300 -$2,600 5 $3,300 $700 $3,300 $4,000 discounted payback period @ 0% 4.79 years [ 15,800/3300 ] _year cash flows -$15,800 pv @ 4% $3,300 0.9615 $3,173 -$12,627 2 $3,300 0.9246 $3,051 -$9,576 3 $3,300 0.8890 $2,934 -$6,642 4 $3,300 0.8548 $2,821 -$3,821 5 $3,300 0.8219 $2,712 $1,109 6 $3,300 0.7903 $2,608 $1,499 present value cumulative discounted cash flows -$15,800 $15,800 discounted payback period 3.30 years 3+(842/2821) 6 $15,800 year cash flows pv @ 20% present value cumulative discounted cash flows 1 $3,300 0.8333 $2,750 -$13,050 2 $3,300 0.6944 $2,292 -$10,758 3 $3,300 0.5787 $1,910 -$8,849 $3,300 0.4823 $1,591 -$7,257 $3,300 0.4019 $1,326 $5,931 $3,300 0.3349 $1,105 $4,826 -$15,800 -$15,800 discounted payback period years never payback