Question

What is Project B's Discounted Payback Period with a WACC of 9.75%?

YEAR                       CASH FLOWS

                             Project A              Project B

0                         -$1050                -$1050

1                             675                    360

2                             650                      360

3                                                           360

4                                                           360

Answer 1

Ans:- Discounted Payback Period is calculated by

= No of years before discounted payback recovery + (Initial Investment - Cumulative cash flow in the before recovery) / Discounted cash flow in the year after recovery

= 3 years + ($1050 - $899.22) / $248.13 = 3.61 years

K11 for A E 1 2 3 B с D F Project B Intial Investment - $1050 CCF is cumulative cash flow Years Cash flow PVF @ 9.75% PV of cash inflows CCF 360 0.91116 328.02 328.02 2 360 0.83022 298.88 626.90 3 360 0.75646 272.33 899.22 4 360 0.68926 248.13 1147.35 4 1 5 6 7 8 9 0.61 10 11 Discounted PBP 3.61 Years

K11 foc A D E F 1 2 B с Project B Intial Investment - $1050 Years Cash flow 1 360 3 4 CCF is cumulative cash flow PVF @ 9.75% PV of cash inflows CCF =1/(1+0.0975)^1 =C4*D4 =E4 =1/(1+0.0975)^2 =C5*D5 =F4+E5 =1/(1+0.0975)^3 =C6*D6 =F5+E6 =1/(1+0.0975)^4 =C7*D7 =F6+E7 5 2 360 6 3 360 7 4 360 8 9 =(1050-F6)/E7 10 11 Discounted PBP =3+F9 Years

Therefore, the discounted payback period for the project B is 3.61 years.