Nugent Communication Corp. is investing $9,145,700 in new technologies. The comp

Question

Nugent Communication Corp. is investing $9,145,700 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $1,755,000 $3,448,000 $3,239,100 $1,508,500 What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. Do not round discount factors. If discounted payback period exceeds life of the project, enter 0 for the answer.) The discounted payback period for the project is ______ years.

Explanation / Answer

The discounted payback period is 8 years + ( 9,145,700- 8,842,992) / (9,693,786 -8,842,992) = 8.3558 years or

8 years and 128 days. A 360 day year has been used.

Year Cash inflows PV factor at 10% Discounted cash flow Cumulative discounted cash flow 1 1,755,000 0.909 1,595,295 1,595,295 2 3,448,000 0.826 2,848,048 4,443,343 3 3,239,100 0.751 2,432,564 6,875,907 4 1,508,500 0.683 1,030,306 7,906,213 5 1,508,500 0.621 936,779 8,842,992 6 1,508,500 0.564 850,794 9,693,786 7 1,508,500 0.513 773,861 10,467,647

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