Problem 7-3 Calculating Discounted Payback An investment project has annual cash
ID: 2826232 • Letter: P
Question
Problem 7-3 Calculating Discounted Payback
An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, and a discount rate of 14 percent.
What is the discounted payback period for these cash flows if the initial cost is $5,700? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period years
What is the discounted payback period for these cash flows if the initial cost is $7,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period years
What is the discounted payback period for these cash flows if the initial cost is $10,800? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period years
Explanation / Answer
4300
Discounted payback period = period up to which cummulative discounted cash flow is negative+ (cummulative discounted cash flow of that period /discounted cash flow of next period]
case A= 1+ [1840.36/3000.93]
= 1+ .61
= 1.61 years
case B: 2 + [939.43/3442.35]
= 2+.27
= 2.27 years
case C : 3 + [497.08/2545.94]
3 + .20
3.20 years
Case A case B case C year PVF@ 14% cash flow Discounted cash flow [PVF* CF] cummulative discounted cash flow cash flow Discounted cash flow [PVF* CF] cummulative discounted cash flow cash flow Discounted cash flow [PVF* CF] cummulative discounted cash flow 0 1 -5700 -5700 -5700 -7800 -7800 -7800 -10800 -10800 -10800 1 .87719 4400 3859.64 -1840.36 [-5700+3859.64] 4400 3859.64 -3940.36 [-7800+3859.64] 4400 3859.64 -6940.36 2 .76947 3900 3000.93 1160.57 [-1840.36+3000.93] 3900 3000.93 -939.43 [-3940.36+3000.93] 3900 3000.93 -3939.43 3 .67497 5100 3442.35 5100 3442.35 2502.92 [-939.43+3442.35] 5100 3442.35 -497.08 4 .59208 4300 2545.94 4300 2545.944300
2545.94 2048.86