An investment project has annual cash inflows of $4,200, $5,100, $6,300, and $5,500, and a discount rate of 15 percent. a. What

Question

2 years ago

8

is the discounted payback period for these cash flows if the initial cost is $6,900

1 answer:

Naddika [18.5K] · Answer 1 · 2022-05-01T22:30:45+03:00

Answer:

It will take 1 year and 307 days to cover the initial investment.

Explanation:

Giving the following information:

Initial investment= $6,900

Cash flows:

Cf1= $4,200

Cf2= $5,100

Cf3= $6,300

Cf4= $5,500

Discount rate= 15%

The payback period is the time required to cover the initial investment. We need to discount each cash flow.

Year 1= 4,200/1.15 - 6,900= -3,247.83

Year 2= 5,100/1.15^2 - 3,247.83= 608.50

To be more accurate:

(3,247.83 / 3,856.33)*365= 307 days

It will take 1 year and 307 days to cover the initial investment.