Question

Project L costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback

Answer 1

5.155 year

Step-by-step explanation:

The computation of the projected discounted payback period is shown below:

Year Inflow Present value Present value Cumulative PV

factor at 8%

1 11000 0.926 10186 10186

2 11000 0.857 9427 19613

3 11000 0.794 8734 28347

4 11000 0.735 8085 36432

5 11000 0.681 7491 43923

6 11000 0.631 6941 50864

7 11000 0.583 6413 57277

8 11000 0.540 5940 63217

Now

Discounted payback period is

= 5 year + (45000-43923) ÷ 6941

= 5 year + 0.155

= 5.155 year