Question

Question 12 6 pts What is Project A's Discounted Payback Period with a WACC of 7.75%? YEAR CASH FLOWS Project A Project B O -$1050 -$1050 1 675 360 2 650 360 3 360 360 HTML Editore BIA-A- IE 3 X XEE - OV C0DT 112pt Paragraph

Answer 1

Project A

Discounted cash flow in year 1= $626.45

Discounted cash flow in year 2= $559.86

Discounted payback period= full years until recovery + unrecovered cost at the start of the year/ discounted cash flow during the year

= 1 year + ($1,050 - 626.45)/ $559.86

= 1 year + $423.55/ $559.86

= 1 year + 0.76

= 1.76 years.

Project B

Discounted cash flow in year 1= $334.11

Discounted cash flow in year 2= $310.08

Discounted cash flow in year 3= $287.77

Discounted cash flow in year 4= $267.06

Cumulative discounted cash flow in year 3= $931.96

Discounted payback period= full years until recovery + unrecovered cost at the start of the year/ discounted cash flow during the year

= 3 years + ($1,050 - $931.96)/ $267.06

= 3 years + $118.04/ $267.06

= 3 years + 0.44

= 3.44 years.

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