Question

Problem 8 (10 pts). Consider the following investment with given initial cost and annual revenues. End of Year Cost/Revenue (TL) 0 -120,000 30,000 2 30,000 3 30,000 4 30,000 5 30,000 6 30,000 7 30,000 8 50,000 a) Determine payback period (n) assuming time value of money is ignored. (i=10%) b) Determine payback period assuming time value of money is i=10%. (Show your work).

Answer 1

Solution: Part-1) Payback period: 4 years Working: Year CF NCF $-120,000 0 $-120,000 1 $30,000 $-90,000 $-60,000 2 $30,000 3 $30,000 $-30,000 4 $30,000 SO Part-2) Discounted payback period: 5.37 years Working: Discounted Payback Period: 5.371 years Discounted Payback Period = X + Y/Z = 5 + |-6276.4| / 16934.22 % 5.37 years. Discounted Payback Period Calculator - Results NCF PV Factor DCF $-120,000 $-120,000 Year CF CCF 0 1 $-120,000 $-120,000 1 $30,000 $-90,000 0.91 $27,272.73 $-92,727.27 2 $30,000 $-60,000 0.83 $24,793.39 $-67,933.88 3 $30,000 $-30,000 0.75 $22,539.44 $-45,394.44 4 $30,000 $0 0.68 $20,490.4 $-24,904.04 5 $30,000 $30,000 0.62 $18,627.64 $-6,276.4 6 $30,000 $60,000 0.56 $ 16,934.22 $10,657.82 7 $30,000 $90,000 0.51 $15,394.74 $26,052.56 8 $50,000 $140,000 0.47 $23,325.37 $49,377.93 PV Present Value Factor, PV$1 = 1/(1+i)" DCF Discounted Cash Flow, CF x PV$1