Question

Compute the discounted payback period for a project with the following cash flows received uniformly within each year and with a required return of 8%:

Answer 1

The discounted payback period for the project is 2.33 years.

Time  Cashflow PVF at 8% Present value  Cumulative Present value

0           -$100            1                 -100                          -100

1                40       0.925926     37.03704                   -62.963

2              50        0.857339      42.86694                  -20.096

3               60       0.793832      47.62993                   27.53391

Note

• The PVF for each year are derived using the PVF calculator (i.e PVF, 8%, 0 years)
• We can also observe that we are able to payback the money before the entire 3rd year, therefore, the 2nd year will be used in calculation of discounted payback period.

Discounted payback period = 2 Years + 20.096/47.6299

Discounted payback period = 2 Years + 0.33

Discounted payback period = 2.33 years.

Therefore, the discounted payback period for the project is 2.33 years.

Missing word includes "Compute the discounted payback period for a project with the following cash flows received uniformly within each year and with a required return of 8%: Initial Outlay = $100 Cash Flows: Year 1 = $40 Year 2 = $50 Year 3 = $60"

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