Question

Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year 0 1 2 3
---------------------------------------------
Cash flows -$900 $500 $500 $500 (Points : 10)
1.88 years
2.09 years
2.29 years
2.52 years
2.78 years

Answer 1

We use the formula to solve for the discounted payback period:
DPP = ln ( 1 / (1-P x r /A) ) / ln (1 + r)
From the problem
P = 900
r = 0.1
A = 500

Substituting:
DPP = ln (1 / (1 - 900(0.10)/500) / ln ( 1 + 0.10)
DPP = 2.09 years