Consider the investment project below which has a fouryear i

\"Consider the investment project below, which has a four-year investment life (n = 0 through 4).
Project ($)
-3,600
1,400
2,600
3,600
2,200
What is the discounted payback period at an interest rate of 12.1%? Enter your answer as an integer. If the project never pays itself back, enter a 0.\"

Solution

The answer is 3 years since the present value of 1400,2600,3600 at 12.1% interest rate equals and exceeds cost of 3600

Note present value of 1400=1400/(1+0.121)=1248,pv of 2600=2600/1+0.121)^2=2069 and that of 3600=3600/(1+0.121)^3=2555