Question

DISCOUNTED PAYBACK

Project L costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's discounted payback? Round your answer to two decimal places.

Answer 1

Year	Cash flows	Present value@10%	Cumulative Cash flows
0	(30,000)	(30,000)	(30,000)
1	8000	7272.73	(22727.27)
2	8000	6611.57	(16115.7)
3	8000	6010.52	(10105.18)
4	8000	5464.11	(4641.07)
5	8000	4967.37	326.3
6	8000	4515.79	4842.09
7	8000	4105.26	8947.35
8	8000	3732.06	12679.41

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).

=4+(4641.07/4967.37)

=4.93 year(Approx).