Question

Delta Enterprises, Inc. has a WACC of 12% and is considering a project that requires a cash outlay of $1,250 now with cash inflows of $500 at the end of each year for the next 5 years. What is the project’s Discounted Payback? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Answer 1

Year	Cash flows	Present value@12%	Cumulative Cash flows
0	(1250)	(1250)	(1250)
1	500	446.43	(803.57)
2	500	398.60	(404.97)
3	500	355.89	(49.08)
4	500	317.76	268.68
5	500	283.71	552.39(Approx).

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=3+(49.08/317.76)

=3.15 years(Approx).