please show steps how to solve these question 19. What is the discounted payback

Question

please show steps how to solve these question 19. What is the discounted payback of the following project if the required return is 14%? 2 $22 3 $25 4 $10 5 S5 Year $22 C. 4 years Cash Flow -$60 B. 3 years D. 5 years E. It doesn't pay back on a discounted basis A. 2 years Answer: 20. If the required return is 12%, what is the discounted payback period of the following cash flows? 0 2 Year Cash Flow -$65,000 $25,000 $25,000 $25,000 $10,000 $10,000 D. 5 years E. The project does not pay back on a discounted basis B. 3 years C. 4 years A. 2 years Answer:

Explanation / Answer

19)

Discounted payback period is the no. of years it takes to recover the original values using discounted cash flows.

Here PV(CF) is the present value of the cash flow. PV(CFn) = CFn / (1 + r)^n

where r = 14%

Cumulative PV is the sum of PV of cash flows of all previous years. We can see that in year 5, the Cumulative PV turns positive. Hence, the payback period is 5 years.

20)

In this case, we can see that the investment is recovered in year 4.

Year CF PV(CF) Cumu PV 0 -60 -60 -60 1 22 19.3 -40.7 2 22 16.9 -23.8 3 25 16.9 -6.9 4 10 5.9 -1.0 5 5 2.6 1.6

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