Question

(Discounted payback period​)

​ Gio's Restaurants is considering a project with the following expected cash​ flows:

.

YEAR	PROJECT CASH FLOW
0	−​$150	million
1	100	million
2	60	million
3	85	million
4	95	million

If the​ project's appropriate discount rate is 8 percent, what is the​ project's discounted payback​ period?

The​ project's discounted payback period is?   _________years.  ​(Round to two decimal​ places.)

Answer 1

Correct Answer:

The project’s Discounted payback period is 2.08 years

Working:

Payback Period = years before full recovery + (unrecovered amount at the start of the period / cash flow during the next period.

Years before full recovery = 2^nd year

Unrecovered amount at the start of the period = ($ 150,000,000 – $ 144,032,921.8) =    $5967078.2

Cash flow during the next period (3^rd year) = $ 67,475,740.5

Discounted payback period         = 2 + (5967078.2 / 67,475,740.5)

                                                                = 2 + 0.0884329

Discounted payback period         = 2.088 years

Calculations:

Discounted payback period
year	Cash inflow	Discount Rate (8%)	Discounted Cash flow	cumulative cash Inflow
1	100,000,000	1.08	92,592,592.6	92,592,592.59
2	60,000,000	1.1664	51,440,329.2	144,032,921.8
3	85,000,000	1.259712	67,475,740.5	21,150,8662.3
4	95,000,000	1.36048896	69,827,836	281,336,498.3