Question

Find the Biscounted Payback period for the following project. The discount rate is 8% Project X Initial Outlay $17,573 Year 1 $5,839 Year 2 $5,721 Year 3 $5,988 Year 4 $8,743 Round the answer to two decimal places.

Answer 1

Time Cash flow Discount Factor Discounted Cash Flow Cumulative Discounted cash flow (17,573.00) Initial Outlay 1.00000 (17,573.00) (17,573) 5,839 Year 1 0.92593 5,406.48 (12,166.52) Year 2 5,721 4,904.84 0.85734 0.79383 (7,261.68) (2,508.22) Year 3 5,988 4,753.47 Year 4 8,743 0.73503 6,426.37 3,918.15

Un-recovered amount Payback Period = Years before full recovery+- cash flow during the period

= 3+ 2508.22 6426.37

= 3.39 years

Formula for discount factor:

Discount Factor = 7 (1+i)n

Where,
i = discount rate
n = number of periods

Discounted cash flow = cash flow * discount factor.