Compute the discounted payback statistic for Project C if the appropriate cost o

Question

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

  

  

  

Should the project be accepted or rejected?

Compute the discounted payback statistic for Project C if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

This would go on upto year 5.

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=2+(678.35/791.81)

=2.86 years(Approx)

Hence since discounted payack is less than 3 years;the project should be accepted.

Year Cash flows Present value@7% Cumulative Cash flows 0 (2500) (2500) (2500) 1 1080 1009.35 (1490.65) 2 930 812.30 (678.35) 3 970 791.81 113.46

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