Question

Garvin Enterprises is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.
WACC:		12%
Year:		0			1	2		3
Cash flows:		-$1,100			$550	$550		$550

Answer 1

Solution :

The project's discounted payback period is = 2.44 years ( when rounded off to two decimal places )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

20.06.2019.xlsx - Microsoft Excel FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW D E G F F H 1 Statement showing calculation of Discounted Payback period of the project Year PV Factor @ 12 % Project Cash Flows (2) 2 Discounted Cash Cumulative Discounted Cash flows Sl.No. Particulars (1) flows (3)-(1) (2) 3 1 Cash Inflow Year 1 2 Cash Inflow Year 2 3 Cash Inflow Year 3 0.8929 $ 0.7972 $ 550.00 $ 491.07 $ 4 1 491.07 438.46 $ 550.00 $ 550.00 $ 5 929.53 2 0.7118 $ 391.48 $ 6 1,321.01 7 8 Discounted Payback period: The Discounted Payback period lies between the year 2 & 3 as the Initial Investment of $ 1,100 is earned during the year 3 Hence Discounted Payback period 2 years + [ ($ 1,100- $ 929.53)/ $391.48] 9 10 11 2+[170.47/391.48 ] 2+0.4355 2.4355 years; 12 13 when rounded off to two decimal places) 14 = 2.44 years 15 16 17 18