Answer:
It will take 7 years and 156 days to pay back.
Explanation:
Giving the following information:
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%.
To calculate the discounted payback period, we need to discount each cash flow until the initial investment is cover.
PV= Cf/ (1+i)^n
Discounted cash flow Pay back
Year 1= 9,000/(1.11)= 8,108.11 31,819.89
Year 2= 9,000/(1.11^2)= 7,304.60 24,515.29
Year 3= 9,000/(1.11^3)= 6,580.72 17,934.57
Year 4= 9,000/(1.11^4)= 5,928.58 12,005.99
Year 5= 9,000/(1.11^5)= 5,341.06 6,664.93
Year 6= 9,000/(1.11^6)= 4,811.77 1,853.16
Year 7= 9,000/(1.11^7)= 4,334.93 0
To be more accurate:
(1,853.16/4334.93)*365= 156 days
It will take 7 years and 156 days to pay back.
