Consider the following four-year project. The initial outlay or cost is $210,000. The respective cash inflows...
Consider the following four-year project. The initial outlay or cost is $210,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%?
About 2.94 years
About 2.000 years
About 2.427 years
About 1.667 years
Homework Answers
| Year | Cash flows | Present value@11% | Cumulative Cash flows |
| 0 | (210,000) | (210,000) | (210,000) |
| 1 | 100,000 | 90090.09 | (119909.91) |
| 2 | 80,000 | 64929.79 | (54980.12) |
| 3 | 80,000 | 58495.31 | 3515.19 |
| 4 | 20,000 | 13174.62 | 16689.81 |
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).
=2+(54980.12/58495.31)
=2.94 years(Approx).
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