Question

Project L requires an initial outlay at t = 0 of $70,000, its expected cash inflows are $16,000 per year for 9 years, and its WACC is 13%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Discounted Payback period is the period in which initial investment is recovered after considering the time value of money.

Year	Opening Bal	CF	PVF @13%	Disc CF	Closing Bal
1	$ 70,000.00	$ 16,000.00	$      0.88	$ 14,159.29	$ 55,840.71
2	$ 55,840.71	$ 16,000.00	$      0.78	$ 12,530.35	$ 43,310.36
3	$ 43,310.36	$ 16,000.00	$      0.69	$ 11,088.80	$ 32,221.56
4	$ 32,221.56	$ 16,000.00	$      0.61	$   9,813.10	$ 22,408.46
5	$ 22,408.46	$ 16,000.00	$      0.54	$   8,684.16	$ 13,724.30
6	$ 13,724.30	$ 16,000.00	$      0.48	$   7,685.10	$    6,039.20
7	$   6,039.20	$ 16,000.00	$      0.43	$   6,800.97	$      -761.77
8	$     -761.77	$ 16,000.00	$      0.38	$   6,018.56	$   -6,780.32
9	$ -6,780.32	$ 16,000.00	$      0.33	$   5,326.16	$ -12,106.48

Disc PBP = year in which least +ve CB + [ CB in that Year / Disc CF in next year ]

= 6 + [ 6039.20 / 6800.97 ]

= 6+ 0.89

= 6.89 Years.