An investment project costs $17,900 and has annual cash flows of $3,600 for 6 ye

Question

An investment project costs $17,900 and has annual cash flows of $3,600 for 6 years. (Enter 0 when there is no payback period. Round your answers to 2 decimal places. (e.g., 32.16))

(a) What is the discounted payback period if the discount rate is 0 percent?

Discounted payback period years

(b) What is the discounted payback period if the discount rate is 3 percent?

Discounted payback period years

(c) What is the discounted payback period if the discount rate is 22 percent?

Discounted payback period years

Please show equation it helps to see where I went wrong!

Explanation / Answer

(a) What is the discounted payback period if the discount rate is 0 percent?

17900/3600 = 4.97 years

Discounted payback period years

(b) What is the discounted payback period if the discount rate is 3 percent?

Discounted payback period years

year

pv factor

cash flow/pv factor

total

1

3600

1.03

3495.145631

3495.145631

2

3600

1.0609

3393.345273

6888.490904

3

3600

1.092727

3294.509974

10183.00088

4

3600

1.12550881

3198.553372

13381.55425

5

3600

1.159274074

3105.391624

16486.94587

6

3600

1.194052297

3014.943324

19501.8892

The pv factors are 1.03, 1.03^2, 1.03^3, 1.03^4…

The payback period is 5 years plus a fraction of the 6th year. To find this fraction:

((17900-16486.95)/(19501.89-16486.95))*100 = 0.47

Answer: 5.47

(c) What is the discounted payback period if the discount rate is 22 percent?

Discounted payback period years

year

pv factor

cash flow/pv factor

total

1

3600

1.22

2950.819672

2950.819672

2

3600

1.4884

2418.704649

5369.524321

3

3600

1.815848

1982.544794

7352.069116

4

3600

2.21533456

1625.036717

8977.105833

5

3600

2.702708163

1331.997309

10309.10314

6

3600

3.297303959

1091.801073

11400.90421

answer: No payback period.

year

pv factor

cash flow/pv factor

total

1

3600

1.03

3495.145631

3495.145631

2

3600

1.0609

3393.345273

6888.490904

3

3600

1.092727

3294.509974

10183.00088

4

3600

1.12550881

3198.553372

13381.55425

5

3600

1.159274074

3105.391624

16486.94587

6

3600

1.194052297

3014.943324

19501.8892

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