Question

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

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