The Boeing Company has a preference for the discounted payback method when it considers investing in...
The Boeing Company has a preference for the discounted payback method when it considers investing in projects. Given that Boeing's WACC is 10%, find the discounted payback for a project that has the following cash flows:
Year (t) and cash flows (t=0) -$950 (t=1) $500 (t=2) $500 (t=3) $500
Homework Answers
| Year | Cash flows | Present value@10% | Cumulative Cash flows |
| 0 | (950) | (950) | (950) |
| 1 | 500 | 454.55 | (495.45) |
| 2 | 500 | 413.22 | (82.23) |
| 3 | 500 | 375.66 | 293.43(Approx). |
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+(82.23/375.66)
=2.22 years(Approx).
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