Problem 10-17 (similar to Question Help (Discounted payback period) Gio\'s Resta

Question

Problem 10-17 (similar to Question Help (Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows:?. If the project's appropriate discount rate is 9 percent, what is the project's discounted payback period? The project's discounted payback period is years. Round to two decimal places.) Data Table PROJECT YEAR CASH FLOW $120 million 85 million 60 million 80 million 95 million (Click on the icon located on the top-right comer of the data table above in order to copy its contents into a spreadsheet.) PrintDone

Explanation / Answer

Discounted Payback Period is the amount of time required to completely cover the initial project investment by the discounted value of project cash flows.

Project Investment = $ 120 million and Discount Rate = 9 %

Discounted Payback Period = 1 + 42.02 / 50.5 = 1.83 years approximately.

TIME Project Cash Flow Discounted Cash Flow Outstanding Investment Balance 0 120 120 1 85 85/1.09 = $ 77.98 120-77.98 = $ 42.02 2 60 60/1.09^(2) = $ 50.5 $ 0 3 80 80/1.09^(3) = $ 61.77 4 95 95/(1.09)^(4) = $ 67.3

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