Business, 16.07.2019 22:20 hartzpeyton136

An investment project has annual cash inflows of $4,400, $3,900, $5,100, and $4,300, for the next four years, respectively. the discount rate is 14 percent. a. what is the discounted payback period for these cash flows if the initial cost is $5,700? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. what is the discounted payback period for these cash flows if the initial cost is $7,800? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) c. what is the discounted payback period for these cash flows if the initial cost is $10,800? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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Answer from: lover23707

Discounted payback period shall be as follows:

a. 1 year 7.36 months

b. 2 years 3.27 months

c. 3 years 2.9 months

Explanation:

a. Payback period in case of cash outflow = $5,700

For calculating the pay back period we shall firstly discount the cash flows to present value @14 %.

Year Cash Flow PV Factor PV of Cash Flow Cumulative

Cash Flow

0 - $5,700 1 - $5,700 -5,700

1 $4,400 0.877 $3,858.8 -$1,841.2

2 $3,900 0.770 $3,003 $1,161.8

Since the cumulative cash flows are positive in 2nd year payback period =

1 + $\frac{1,841.2}{3,003} \times 12$ = 1 year and 7.36 months

b. Payback period in case of cash outflow = $7,800

For calculating the pay back period we shall firstly discount the cash flows to present value @14 %.

Year Cash Flow PV Factor PV of Cash Flow Cumulative

Cash Flow

0 - $7,800 1 - $7,800 -7,800

1 $4,400 0.877 $3,858.8 -$3,941.2

2 $3,900 0.770 $3,003 -$938.2

3 $5,100 0.675 $3,442.5 $2,504.3

Since the cumulative cash flows are positive in 3rd year payback period =

2 + $\frac{938.2}{3,442.5} \times 12$ = 2 years and 3.27 months

b. Payback period in case of cash outflow = $10,800

For calculating the pay back period we shall firstly discount the cash flows to present value @14 %.

Year Cash Flow PV Factor PV of Cash Flow Cumulative

Cash Flow

0 - $10,800 1 - $10,800 -$10,800

1 $4,400 0.877 $3,858.8 -$6,941.2

2 $3,900 0.770 $3,003 -$3,938.2

3 $5,100 0.675 $3,442.5 -$495.7

4 $4,300 0.592 $2,545.6 $2,049.9

Since the cumulative cash flows are positive in 4th year payback period =

3 + $\frac{495.7}{2,049.9} \times 12$ = 3 years and 2.9 months

Final Answer

Discounted payback period shall be as follows:

a. 1 year 7.36 months

b. 2 years 3.27 months

c. 3 years 2.9 months

Answer from: Quest

answer; that person may have a larger tax bill to pay on income taxes;

Answer from: Quest

the answer is a. $209,000

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