Discounted payback: Roswell Energy Company is installing new equipment at a cost

ID: 2700809 • Letter: D

Question

Discounted payback: Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company%u2019s discount rate for such projects is 14 percent. What is the project%u2019s discounted payback period?
Please show procedure, thank you
Discounted payback: Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company%u2019s discount rate for such projects is 14 percent. What is the project%u2019s discounted payback period?
Please show procedure, thank you
Discounted payback: Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company%u2019s discount rate for such projects is 14 percent. What is the project%u2019s discounted payback period?
Please show procedure, thank you

Explanation / Answer

Roswell Energy

i = 14%

Year

PVCF

Cumulative PVCF

$(10,000,000)

$(10,000,000

1,045,000

916,667

(9,083,333)

2,550,000

1,962,142

(7,121,191)

4,125,000

2,784,258

(4,336,934)

6,326,750

3,745,944

(590,990)

7,000,000

3,635,581

3,044,591

PB = Years before cost recovery + (Remaining cost to recover/ Cash flow during the year

= 4 + ($590,990/ $3,635,581)

= 4.16 years