Merge Center Font Alignment CODE G H Chapter 9: Dropbox 6.4 Problem 3: Calculating Discounted Payback An investment...

Question

Question

Answer 1

Answer #1

When the initial outflow is $5200

year	Cash flow	Present value factor (1/(1+i)*n)	Discounted cash flow	Cummulative discounted cash flow
0	5200	0.877192982	4561.403509	4561.403509
1	2800	0.769467528	2154.50908	2406.894429
2	3700	0.674971516	2497.39461	-90.50018089
3	5100	0.592080277	3019.609415	-3110.109595
4	4300	0.519368664	2233.285257	-5343.394852

A i.e. the last period having negative discounted cash flow = 1

B i.e. the value of discounted cumulative cash flow at the end of period A = 2406.89

C i.e. the discounted cash flow after the period A = 2497.39

Formula for calculating,

Discounted Payback Period = 2 + B / C

Discounted Payback Period = 4 + 2406.89/ 2497.39= 1.9634 years

Intial otflow = $5400

year	Cash flow	Present value factor (1/(1+i)*n)	Discounted cash flow	Cummulative discounted cash flow
0	5400	0.877192982	4736.842105	4736.842105
1	2800	0.769467528	2154.50908	2582.333026
2	3700	0.674971516	2497.39461	84.9384156
3	5100	0.592080277	3019.609415	-2934.670999
4	4300	0.519368664	2233.285257	-5167.956256

Discounted payback period using the above formula=2.028 years

Intial otflow = $10400

year	Cash flow	Present value factor (1/(1+i)*n)	Discounted cash flow	Cummulative discounted cash flow
0	10400	0.877192982	9122.807018	9122.807018
1	2800	0.769467528	2154.50908	6968.297938
2	3700	0.674971516	2497.39461	4470.903328
3	5100	0.592080277	3019.609415	1451.293913
4	4300	0.519368664	2233.285257	-781.9913435

Discounted payback period using the above formula=2.028 years

Answer 2

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