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A project has an initial cost of $8,600 and produces cash inflows of $3,200, $4,900, and $1,500...

Question:

A project has an initial cost of $8,600 and produces cash inflows of $3,200, $4,900, and $1,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 8%?

Discount Payback Period:

Discount payback period is a method used to assess profitability of a project. It is the number of periods it takes such that the discounted revenue from the project is enough to recover the initial cost of the project.

Answer and Explanation:

At 8% return, the cumulative discounted revenue from the project is

  • Year 1: {eq}\frac{3200}{(1 + 8\%)} = 2962.96.{/eq}
  • Year 2: 2962.96 + ...

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Learn more about this topic:

Discounted Payback Period: Method & Example

from Finance 101: Principles of Finance

Chapter 9 / Lesson 3
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