Question

Sanders Inc., is considering a project with the following cash flows.  

Year	Cash Flows
0	-$50,000
1	$10,988
2	$15,644
3	$20,216
4	$40,031
5	$133,490

What is the discounted payback period for this project if the appropriate discount rate is 7 percent?

[Enter the final answer in as a decimal (e.g. 5.55) - not a percent]

Answer 1

Cash Flows Discounted value factor Discounted value Cumm. Cash flows Investment still to be covered Year 1/(1+R)An where R =7% n -50,000.00 0 -50,000 -50,000 -50,000.00 10,269.16 10,269.16 1 10,988 0.9346 -39,730.84 13,664.08 23,933.23 2 15,644 0.8734 -26,066.77 0.8163 16,502.28 -9,564.49 3 20,216 40,435.51 40,031 70,974.97 20,974.97 4 0.7629 30,539.46 0.7130 1,16,151.50 5 1,33,490 95,176.53 1,66,151.50 Year before investment covered fully (Investment still to be covered/cash flow in the year fully covered)year Discounted Payback period Year before investment fully covered Year 3 Investment still to be covered in year 4 $9,564 Discounted Payback Period yr 3 ($9,564 / $30,539)yr Discounted Payback Period yr 3 0.313yr So,Discounted Payback period 3.313 years