Question

An investment project has annual cash inflows of $5,000, $6,100, $6,900, and $8,200, and a discount rate of 17 percent. Required:What is the discounted payback period for these cash flows if the initial cost is $8,000

Answer 1

It will take 1.84 years to cover the initial investment.

Step-by-step explanation:

Giving the following information:

Initial investment= $8,000

Discount rate= 17%

Cash flow:

1= 5,000

2= 6,100

3= 6,900

4= 8,200

The payback period is the time required to cover the initial investment. We need to discount the cash flows using the following formula:

PV= Cf / (1+i)^n

Year 1= (5,000/ 1.17^1) - 8,000= -3,726.5

Year 2= (6,100/ 1.17^2) - 3,726.5= $729.63

To be more accurate:

(3,726.5/4,456.13)= 0.84

It will take 1.84 years to cover the initial investment.