1. Investments A and B, suppose that each has a cost of capital of 10%. How...
1. Investments A and B, suppose that each has a cost of capital of 10%. How long does it take for each investment’s discounted cash flows to pay back its $1,000,000 investment?
| Year | Investment A | Investment B |
| 2001 | $400,000 |
$100,000 |
| 2002 | 400,000 | 100,000 |
| 2003 | 400,000 | 100,000 |
| 2004 | 400,000 | 100,000 |
| 2005 | 400,000 | 100,000 |
Homework Answers
Investment A = 3.02
Investment B = Indeterminate
| Year | Investment A | DCF | Cumulative DCF | Investment B | DCF | Cumulative DCF |
| 0 | -1000000 | -1000000.00 | -1000000.00 | -1000000 | -1000000.00 | -1000000.00 |
| 1 | $400,000 | 363636.36 | -636363.64 | $100,000 | 90909.09 | -909090.91 |
| 2 | 400,000 | 330578.51 | -305785.12 | 100,000 | 82644.63 | -826446.28 |
| 3 | 400,000 | 300525.92 | -5259.20 | 100,000 | 75131.48 | -751314.80 |
| 4 | 400,000 | 273205.38 | 267946.18 | 100,000 | 68301.35 | -683013.46 |
| 5 | 400,000 | 248368.53 | 516314.71 | 100,000 | 62092.13 | -620921.32 |
Discounted Payback = Year in which Discounted Cumulative CF is last negative -(Last negative discounted cumulative CF/ CF of next year)
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1. Investments A and B, suppose that each has a cost of capital
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