An investment of $1,090,000 today yields positive cash flows of $200,000 each ye

Question

An investment of $1,090,000 today yields positive cash flows of $200,000 each year for years 1 through 10. MARR is 10%. Determine the DPBP of this investment.

Question 1 An investment of $1,090,000 today yields positive cash flows of $200,000 each year for years 1 through 10, MARR is 10%. Determine the DPBP of this investment. years Round your answer up to the nearest whole number of years. Tolerance is ±1. Click here to access the TVM Factor Table Calculator Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Explanation / Answer

Discounted cash flows for

Year 0: -10900000

Year 1: 200000/1.1=181818.2

Year 2: 200000/1.1^2=165289.3

Year 3: 200000/1.1^3=150263

Year 4: 200000/1.1^4=136602.7

Year 5: 200000/1.1^5=124184.3

Year 6: 200000/1.1^6=112894.8

Year 7: 200000/1.1^7=102631.6

Year 8: 200000/1.1^8=93301.48

Year 9: 200000/1.1^9=84819.52

Cumulative cash flows at the end of

Year 0: -1090000

Year 1: -1090000+181818.2=-908181.8

Year 2: -908181.8+165289.3=-742892.5

Year 3: -742892.5+150263=-592629.584

Year 4: -592629.584+136602.7=-456026.8

Year 5: -456026.8+124184.3=-331842.5

Year 6: -331842.5+112894.8=-218947.7

Year 7: -218947.7+102631.6=-116316.1

Year 8: -116316.1+93301.48=-23014.62

Year 9: -23014.62+84819.52=61804.9

So, discounted pyabck period=8+23014.62/84819.52=8.27 years

Nearest whole number of years=9

Let the number of periods be n,

So NPV>=0

Hence, -1090000+200000/0.1*(1-1/1.1^n)>=0

n>=8.26

So, Discounted payback period=9 years

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