Homework SourseAn initial investment of 2324000 is expected to generate 600
An initial investment of $2,324,000 is expected to generate $600,000 per year for 6 years. Calculate the payback period and discounted payback period of the investment if the discount rate is 11%.
An initial investment of $2,324,000 is expected to generate $600,000 per year for 6 years. Calculate the payback period and discounted payback period of the investment if the discount rate is 11%.
Solution
>> Total Cost of Investment = $2,324,000
>> Income generated per year = $6,00,000
So, in 4 years, total income generated will be : $6,00,000*4 = $2,400,000 , I.e. treated than investment
>> So, Payback Peiod is 4 years
>> Now Discount Rate = 11%
So, total effective income generated per year = (1 - 11/100)*6,00,000 = $ 5,34,000
Let, complete payback comes in \"t\" years
>> So, 5,34,000*t = 2,324,000
>> Solving,
t = 4.35 = 5 (approx.)
=> So, it will take 5 years to get dscounted payback...
