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An investment project costs $10,000 and has annual cash flows of $2,930 for six years. What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years What is the discounted payback period if the discount rate is 5 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years What is the discounted payback period if the discount rate is 19 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period years

Respuesta :

Answer:

3.84 years

0

Explanation:

The discounted payback period calculates how long it takes to recover the amount invested in a project from the discounted cash flow

When discount rate is 5%

Discounted cash flow in year 1 =  $2,930 / 1.05 =$2,790.48

Discounted cash flow in year 2 =  $2,930 / 1.05^2  = $2,657.60

Discounted cash flow in year 3 =  $2,930 / 1.05^3  = $2,531.04

Discounted cash flow in year 4 =  $2,930 / 1.05^4 = $2410.52

Discounted cash flow in year 5 =  $2,930 / 1.05^5 = $2295.73

Discounted cash flow in year 6 =  $2,930 / 1.05^6 =$ 2186.41

The amount invested is recovered within the 3 and 4th year = $10,000 - ($2,790.48 + $2,657.60 + $2,531.04) = $2020.88

The payback period is 3 years + $2020.88 / 2410.52 = 3.84 years

When the discounted cash flow in 19%

TO check if the amount invested would be recovered, calculate the present value

Cash flow each year from year 1 to 6 = $2930

I = 19%

PV = $-9.352

This shows that the amount invested is never recovered

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute