Question

Below are the expected afterminustax cash flows for Projects Y and Z. Both projects have an initial cash outlay of​ $20,000 and a required rate of return of​ 17%.

Project Y Project Z
Year 1 ​$12,000 ​$10,000
Year 2 ​$8,000 ​$10,000
Year 3 ​$6,000 0
Year 4 ​$2,000 0
Year 5 ​$2,000 0
Required:
a. Discounted payback periods for projects Y and Z are ___________.

Answer 1

4.72 years

0 years (The amount invested isn't recovered)

Step-by-step explanation:

Discounted payback calculates how long it takes the amount invested in a project to be recovered from the cumulative cash flows .

For project Y, the discounted cash flows are:

Year 1 = 10,256.41

Year 2 = 4,269.20

Year 3 = 3,746.22

Year 4 = 1,067.30

Year 5 = 912.22

In year 1, 20,000 - 10,256.41 = 9,743.59 is recovered

In year 2 , 9,743.59 - 4,269.20 = 5,474.39

In year 3, 5,474.39 - 3,746.22 = 1,728.17

In year 4 , 1,728.17 - 1,067.30 = 660.87

In year 5 , 660.87 / 912.22 = 0.72

It takes 4.72 years For the amount invested to be recovered.

For project Z, the discounted cash flows are:

In year 1 = 8,547.01

In year 2 = 7,305.14

Total discounted cash flows is 15,852.15

The amount invested isn't recovered

I hope my answer helps you

Answer 2

Project Y = -$1,825.80

Project Z = $4,148.00

Step-by-step explanation:

Calculation are as attached in the file