Question

1You invest $50,000 now and receive $10,000 per year for 15 years starting at the end of the first year. (a) What is the payback period in whole number years for this investment? In other words, in what year do you break even on this investment? (b) Use i = 9% annual rate compounded annually, and use the discounted payback approach (not Simple Payback). g

Answer 1

Answer:

6.94 years

Explanation:

The discounted pay back period by me shall be determined through following mentioned method:

Year     Cash Flow        Present value@9%    Aggregate present value

 0         ($50,000)            ($50,000)                           ($50,000)    

 1          $10,000               $9,174.31                            ($40,825.69)

2          $10,000               $8,416.8                             ($32,408.89)  

3          $10,000               $7,721.83                           ($24,687.06)      

4          $10,000               $7,084.25                          ($17,602.81)

5          $10,000               $6,499.31                           ($11,103.5)  

6          $10,000               $5,962.67                          ($5,140.83)

7          $10,000               $5,470.34                           $329.51  

Since the aggregate present value has become positive during the year 7, therefore, the discounted pay back period should be between 6 and 7 years which shall be determined as follows:

6+($5,140.83/$5,470.34)= 6.94 years