12-8: Payback Period Payback period Project K costs $55,000, its expected cash inflows are $15,000 per...

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Answer 1

Answer #1

Discounted payback period refers to the period within which the entire cost of project can be recovered through discounted cash inflows from the project

Calculaton of discounted payback period

Year(n)	Cash Flow	PVF @ 10% (PVF= 1/(1+r)^n)		Discounted Cash flow	Cumulative Discounted Cash Flow
		Calculation	Amount
1	15000	1/1.10	0.9091	13636.364	13636.364
2	15000	1/(1.10)²	0.8264	12396.694	26033.058
3	15000	1/(1.10)³	0.7513	11269.722	37302.780
4	15000	1/(1.10)⁴	0.6830	10245.202	47547.982
5	15000	1/(1.10)⁵	0.6209	9313.8198	56861.802
6	15000	1/(1.10)⁶	0.5645	8467.109
7	15000	1/(1.10)⁷	0.5132	7697.3718
8	15000	1/(1.10)⁸	0.4665	6997.6107
9	15000	1/(1.10)⁹	0.4241	6361.4643


	Discounted Payback period = Years before full recovery + (Unrecovered amount at the start of the period / Discounted cash flow during the period)

			4years + (55000-47547.982)/9313.819
			4+0.80= 4.80
		Project's Payback = 4.80 years

		Answer is 4.80 years

Answer 2

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