Question

Project L costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback

Answer 1

Answer:

5.155 year

Explanation:

The computation of the projected discounted payback period is shown below:

Year      Inflow     Present value   Present value   Cumulative PV

                           factor at 8%  

1          11000             0.926                  10186               10186

2         11000             0.857                  9427                 19613

3          11000           0.794                   8734                28347

4          11000           0.735                   8085               36432

5          11000          0.681                    7491                43923

6          11000          0.631                   6941                 50864

7         11000           0.583                  6413                  57277

8         11000          0.540                  5940                 63217

Now

Discounted payback period  is

= 5 year + (45000-43923) ÷ 6941

= 5 year + 0.155

= 5.155 year