Compute the discounted payback statistic for Project C, if the appropriate cost of capital is 7...

Question:

Compute the discounted payback statistic for Project C, if the appropriate cost of capital is 7 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Project C

Time: 0 1 2 3 4 5
Cash flow -$2,300 $1,000 $870 $910 $560 $360

Discounted payback period years

Should the project be accepted or rejected?

Accepted
Rejected

Discounted Payback Period:

The discounted payback period of a project is the time needed to recover the initial investment considering the present value of future cash flows. The smaller the payback period, the more attractive is the project under consideration.

Answer and Explanation:

.

As a first step, we need to find the present value of cash inflows with a discount rate of 7%

  • Present Value of Year 1 Cash Inflow = 1000 / ( 1 +...

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Discounted Payback Period: Method & Example

from Finance 101: Principles of Finance

Chapter 9 / Lesson 3
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