Answer:
An investment project has annual cash inflows of $4,200, $5,300, $6,100, and $7,400, and a discount rate of 14 percent. If the initial cost is $7,000, the discounted payback period for these cash flows is ___2_____ years. If the initial cost is $10,000, the discounted payback period for these cash flows is___3____years. If the initial cost is $13,000, the discounted payback period for these cash flows is__4_____years. (Round your answers to 2 decimal places. (e.g., 32.16))
Explanation:
a) Data and Calculations:
Annual cash inflows of
Cash Inflow Discount Factor PV Running Total
Year 1 $4,200 0.877 $3,683.40 $3,683.40
Year 2 $5,300 0.769 4,075.70 7,759.10
Year 3 $6,100 0.675 4,117.50 11,876.60
Year 4 $7,400 0.592 4,380.80 16,257.40
b) An investment project's discounted payback period is the number of years it takes for an investment to recover its costs. It is the period when the project's discounted cash inflows equals the project's discounted cash outflows. It is another version of the payback period that uses discounted cash flows.
