Question

A project has an initial cost of $17,700 and produces cash inflows of $7,200, $8,900, and $7,500 over three years, respectively. What is the discounted payback period if the required rate of return is 16 percent

Answer 1

Answer: Never

Explanation:

Discounted payback period aims to find out how long it will take for a project to repay its investment given its discounted cashflows.

Year 1 = 7,200 / ( 1 + 0.16)

= $6,206.8965

= $6,206.90

Year 2 = 8,900 / ( 1 + 0.16) ²

= $6,614.149

= 6,614.15

Year 3 = 7,500 / ( 1 + 0.16)³

= $4,804.93

Year 1 + Year 2 + Year 3

= 6,206.90 + 6,614.15 + 4,804.93

= $17,625.98‬

It failed to pay back the $17,700