An investment project costs 10000 and has annual cash flows

An investment project costs $10,000 and has annual cash flows of $2,840 for six years.

What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

What is the discounted payback period if the discount rate is 5 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

What is the discounted payback period if the discount rate is 20 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.)

Solution

Solution(1) Discounted payback period if the discount rate is zero percent= Initial payment/annual cash flow

=$10,000/$2840 = 3.5 years approx

(2) Discounted payback period if the discount rate is 5 percent

Discounted Payback period:- 3 +|-2266|/2337 =3.97 years approx

(3) Discounted payback period if the discount rate is 20 percent

Since cash flow is still not return during the project duration so the project is not accepted if discounted rate of return is 20% here Discounted Payback period is more than 6 years.