Question

Bose Inc. is considering a project that has the following cash flow data. What is the project's payback? What is the product's discounted payback with discount rate=15%.

Year. 0 1 2 3
Cash flows -$1250 $600 $725 $850

Answer 1

The project's payback period is 2 years. The discounted payback period with a discount rate of 15% is slightly longer than 2 years.

Step-by-step explanation:

The payback period is the time it takes for the initial investment to be recovered through the cash flows generated by the project. To calculate the payback period, we add up the cash flows until they equal or exceed the initial investment. In this case, the project's payback period is 2 years.

To calculate the discounted payback period, we apply the discount rate to the cash flows and then add them up until they equal or exceed the initial investment. Using a discount rate of 15%, the project's discounted payback period is slightly longer than 2 years.