Question

Project L costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Answer:

4.93 Years

Explanation:

Detailed calculation of the answer is given below. Note the following:

1) The Cash flows and Cumulative Cash flows are written without rounding off (as mentioned in question not to round off intermediate calculations)

2) The final answer is given in two decimal places (as mentioned in question)

Year            Cash flows ($)                Cumulative Cash flows ($)

 0                    (30,000)                                 (30,000)

 1               7,272.727272727                 (22,727.272727272)

 2              6,611.570247933                  (16,115.702479338)

 3               6,010.518407212                  (10,105.182072126)

 4               5,464.107642920                 (4,641.076429205)

 5                4,967.370584473                 326.294155267

 6                4,515.791440430                  4,842.085595697

 7                4,105.264945845                 8,947.350541543

 8                3,732.059041677                 12,679.409583221

Discounted Payback Period = 4 + (4641.076429205/4967.370584473)

                                               = 4.93 Years