Problem 73 Calculating Discounted Payback An investment proj

Problem 7-3 Calculating Discounted Payback

An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, and a discount rate of 14 percent.

What is the discounted payback period for these cash flows if the initial cost is $5,700? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

What is the discounted payback period for these cash flows if the initial cost is $7,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

What is the discounted payback period for these cash flows if the initial cost is $10,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period            years

Solution

4300

Discounted payback period = period up to which cummulative discounted cash flow is negative+ (cummulative discounted cash flow of that period /discounted cash flow of next period]

case A= 1+ [1840.36/3000.93]

           = 1+ .61

          = 1.61 years

case B: 2 + [939.43/3442.35]

      = 2+.27

   = 2.27 years

case C : 3 + [497.08/2545.94]

         3 + .20

         3.20 years