Answer:
It will take the project 3 years 3.6 months to pay back the initial investment.
Explanation:
The discounted payback period is the length of time of time it will take the present value of the cash inflows to recoup its initial cost.
To compute the discounted payback period we will follow the steps below:
<em>Step 1: Compute the present value</em>
Compute the Present Value of the cash inflows
Year Present Value Cumulative PV
0 75,000 (75,000)
1 30,000 × 1.1^(-1)= 27272.72 (47,727.27)
2 30,000 × 1.1^(-2) = 24793.38 (22,933.88)
3. 25,000 × 1.1^(-3)= 18782.87 (4,151.0)
4. 20,000 × 1.1^(4) = 13,660.26911
5. 20,000 × 1.1^(-5)= 12,418.42646
<em>Step 2 : compute the payback period using the present value of cash flows</em>
Discounted payback period = 3 years + ( 4,150/13,660)× 12 months
= 3 years 3.6 months
It will take the project 3 years 3.6 months to pay back the initial investment.
