Casey is considering a project which will produce cash inflows of $1,500 a year

Question

Casey is considering a project which will produce cash inflows of $1,500 a year for 6 years. The project has a 10% required rate of return and an initial cost of $6,200. Using the information below, what is the discounted payback period? Year Cash Flow Discounted Cash Flow Cumulative Cash Flow 1 $1,500 $1,363.64 $1,363.64 2 $1,500 $1,239.67 $2,603.31 3 $1,500 $1,126.97 $3,730.28 4 $1,500 $1,024.52 $4,754.80 5 $1,500 $ 931.38 $5,686.18 6 $1,500 $ 846.71 $6,532.89 a. 4.55 years b. 4.61 years c. 5.55 years d. 5.61 years

Explanation / Answer

Annuity formula
6200 = (1500/0.1)(1-1/1.1n)

n = 5.61 years

The answer is d.

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