Compute the discounted payback statistic for Project C if the appropriate cost o
ID: 2626986 • Letter: C
Question
Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Explanation / Answer
The Discounted Payback Period is given by (A + B/C)
A = Last period with a negative discounted cumulative cash flow
B = Absolute value of discounted cumulative cash flow at the end of the period A
C = Discounted cash flow during the period after A
A = 2
B = 678.34
C = 791.81
Discounted Payback Period: 2 + 678.34/791.81 = 2 + 0.86 = 2.86 years
Year Cash Flow Discount Rate 1/(1+r)^n Discounted Cash flow Cumulative cash flow 0 -2500 1 -2500 -2500 1 1080 0.9345794393 1009.3457943925 -1490.6542056075 2 930 0.8734387283 812.2980172941 -678.3561883134 3 970 0.8162978769 791.8089405841 113.4527522707 4 600 0.762895212 457.7371272285 571.1898794993 5 400 0.7129861795 285.1944717935 856.3843512927Related Questions
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