Question

An investment project has annual cash inflows of $4,900, $3,400, $4,600, and $3,800, for the next four years, respectively. The discount rate is 13 percent. intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years What is the discounted payback period for these cash flows if the initial cost is $7,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years What is the discounted payback period for these cash flows if the initial cost is $10,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years

Answer 1

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 1+ (863.72 /2662.70)

= 1.32 Years

Hence the correct answer is 1.32 Years

Year	Cash Flow	Discounting Factor(13%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow
0	-5,200	1	-5200	-5,200
1	4,900	0.884955752	4,336.28	-863.72
2	3,400	0.783146683	2,662.70	1,798.98
3	4,600	0.693050162	3,188.03	4,987.01
4	3,800	0.613318728	2,330.61	7,317.62

At Inital Cost of $ 7,300

= 2 + (301.02 / $ 3,188.03)

= 2.09 Years

Year	Cash Flow	Discounting Factor(13%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow
0	-7,300	1	-7300	-7,300
1	4,900	0.884955752	4,336.28	-2,963.72
2	3,400	0.783146683	2,662.70	-301.02
3	4,600	0.693050162	3,188.03	2,887.01
4	3,800	0.613318728	2,330.61	5,217.62

at Initial Cost = $ 10,300

= 3 + ( 112.99/2330.61)

= 3.05 Years