Question

P11-20 (similar to) Question Help (Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: Year Project Cash Flow (millions) $(240) ON + 80 85 If the project's appropriate discount rate is 9 percent, what is the project's discounted payback period? The project's discounted payback period is years. (Round to two decimal places.)

Answer 1

Present value of year 1 cash flow = 85 / (1 + 0.09) = 77.981651

Present value of year 2 cash flow = 80 / (1 + 0.09)² = 67.334399

Present value of year 3 cash flow = 85 / (1 + 0.09)³ = 65.635596

Present value of year 4 cash flow = 102 / (1 + 0.09)⁴ = 72.259372

Cumulative cash flow for year 0 = -240

Cumulative cash flow for year 1 = -240 + 77.981651 = -162.018349

Cumulative cash flow for year 2 = -162.018349 + 67.334399 = -94.68395

Cumulative cash flow for year 3 = -94.68395 + 65.635596 = -29.048354

Cumulative cash flow for year 4 = -29.048354 + 72.259372 = 43.21

29.048354 / 72.259372 = 0.40

Discounted payback period = 3 + 0.4 = 3.40 years