Question

A proposed project has the following costs and benefits: 2. Benefits Year Costs $2,000 0 to b d $1,000 1,000 1,000 2,000 2,000 1 002 h 2 4 Assuming an interest rate of 10 %, the project's simple payback period is most nearly A. 2 years. B. 3 years. sng o butro bs wo RAM i C. 4 years. D. 5 years. E. 6 years. Using the information in question 2, and linear interpolation, the project's discounted payback period is most nearly a. 3.62 years. b. 2.26 years c. 2.05 years d. 2.33 years 3. a to al sle 0 Asd NAM e. 2.89 years.

Answer 1

2.

Simple payback = 2000 / 1000 = 2 yrs

option A is correct answer

3.

Present worth of cash flows for 2 yrs = 1000 * (P/A, 10%,2) = 1000 * 1.735537 = 1735.54

Present worth of cash flows for 3 yrs = 1000 * (P/A, 10%,3) = 1000 * 2.486852 = 2486.85

Using interpolation

n = 3 - (2486.85-2000) / (2486.85 - 1735.54)

n = 3 - 486.85 / 751.31

n = 3 - 0.648 = 2.35 yrs

this is nearest to option d. 2.33 yrs, therefore correct answer is option d