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%?

Question

Ari James

Business

13 January, 02:34

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%?

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Answers (1)

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Noodle · Answer 1

2.68 years

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