Question

Yancy is considering a project which will produce cash inflows of $900 a year for 4 years. The project has a 9% required rate of return and an initial cost of $2,800. What is the discounted payback period? 3.18 years 4.18 years 3.82 years 3.11 years

I know the correct answer is 3.82 years, I need detailed steps on how you get this answer. Thanks!

Answer 1

Year	Cash flows	Present value@9%	Cumulative Cash flows
0	(2800)	(2800)	(2800)
1	900	825.69	(1974.31)
2	900	757.51	(1216.8)
3	900	694.97	(521.83)
4	900	637.58	115.75

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=3+(521.83/637.58)

=3.82 years(Approx).