Question

Ivanhoe Communication Corp. is investing $10,191,900 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Year 1 2 3 4-7 Cash Flows $2,331,000 $5,436,000 $3,769,100 $1,019,500 What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0 for the answer.)

Answer 1

Calculation of discounted payback period

Year	Cash flow	Discount factor	Discounted cash flows	Cumulative discounted cash flows
0	-10,191,900	1	-10191900	-10191900
1	2,331,000	0.909	2118878	-8073021
2	5,436,000	0.826	4490136	-3582885
3	3,769,100	0.751	2830594	-752290.9
4	1,019,500	0.683	696318.5	-55972.4
5	1,019,500	0.621	633109.5	577137.1
6	1,019,500	0.564	574998	1152135.1
7	1,019,500	0.513	523003.5	1675138.6
8

Hence, discounted payback period = 4 + 55972.4/633109.5

= 4.09 years