Question

A project has an initial cost of $14,500 and produces cash inflows of $4,600, $6,100, and $8,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 15 percent?

Answer 1

Explanation:

The cash flows after discounted is

Years   Annual cash flows    Discount factor @15%           Present value

0         $14,500                      1                                               $14,500 (A)

1          $4,600.00                0.8695652174                  $4,000.00

2          $6,100.00                0.7561436673                          $4,612.48

3        $8,500.00                0.6575162324                  $5,588.89

Total present value                                                                 $14,201.36  (B)

Net present value                                                                  -$298.64  (A - B)

Since net present value is negative, so we cannot determined the discounted pay back period