Question

What is the discounted payback of a project that has an initial outlay of $20,000 and will generate $6,000 in year 1, $12,000 in year 2, $9,000 in year 3, and $14,000 in year 4 assuming the cost of capital is 10%?

Answer 1

2.68 years

Step-by-step explanation:

Year Inflows Discount rate 10% PV of cash inflows Cumulative value

1 $6,000 0.9090909091 $5,454.55 $5,454.55

2 $12000 0.826446281 $9,917.36 $15,371.90

3 $9,000 0.7513148009 $6,761.83 $22,133.73

4 $14,000 0.6830134554 $9,562.19 $31,695.92

Total present value $31,695.92

Now the discounted payback period is

= 2 + ($20,000 - $15,371.90) ÷ ($6761.83)

= 2 + 0.68 years

= 2.68 years