Year Cash Flow 0 $7,600 1 1,900 2 2,900 3 2,300 4 1,700 Year Cash Flow (A) Cash
ID: 2764255 • Letter: Y
Question
Year
Cash Flow
0
$7,600
1
1,900
2
2,900
3
2,300
4
1,700
Year
Cash Flow (A)
Cash Flow (B)
0
$45,000
$ 55,000
1
16,000
13,000
2
21,000
15,000
3
15,000
24,000
4
9,000
255,000
2. Calculating Discounted Payback [An investment project has annual cash inflows of $2,800, $3,700, $5,100, and $4,300, for the next four years, respectively. The discount rate is 14 percent. What is the discounted payback period for these cash flows if the initial cost is $5,200? What if the initial cost is $5,400? What if it is $10,400
Year
Cash Flow
0
$7,600
1
1,900
2
2,900
3
2,300
4
1,700
Explanation / Answer
Discounted PBP Time Amount PVf@14% PV Cumulative - (5,200.00) 1.00 (5,200.00) (5,200.00) 1.00 2,800.00 0.8772 2,456.14 (2,743.86) 2.00 3,700.00 0.7695 2,847.03 103.17 3.00 5,100.00 0.6750 3,442.35 3,545.52 4.00 4,300.00 0.5921 2,545.95 6,091.47 PBP = 1 + 2,743.86/2,847.03 PBP = 1.96 Years Discounted PBP Time Amount PVf@14% PV Cumulative - (5,400.00) 1.00 (5,400.00) (5,400.00) 1.00 2,800.00 0.8772 2,456.14 (2,943.86) 2.00 3,700.00 0.7695 2,847.03 (96.83) 3.00 5,100.00 0.6750 3,442.35 3,345.52 4.00 4,300.00 0.5921 2,545.95 5,891.47 PBP = 2 + 96.83/3442.35 PBP = 2.03 Years Discounted PBP Time Amount PVf@14% PV Cumulative - (10,400.00) 1.00 (10,400.00) (10,400.00) 1.00 2,800.00 0.8772 2,456.14 (7,943.86) 2.00 3,700.00 0.7695 2,847.03 (5,096.83) 3.00 5,100.00 0.6750 3,442.35 (1,654.48) 4.00 4,300.00 0.5921 2,545.95 891.47 PBP = 3 + 1,654.48/2,545.95 PBP = 3.65 Years
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