Compute the discounted payback statistic for Project C if the appropriate cost of capital is 8 percent and the maximum allowable discounted payback period is three years. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project C Time: 0 1 2 3 4 5 Cash flow: –$1,600 $720 $660 $700 $420 $220

Discounted Payback period of the project is 2.48 years or 2 years and 6 months.

Explanation:

Payback period is the number of years that a project takes to recover the project's initial investment.

Discounted Payback period is the number of years that a project takes to recover the project's initial investment in present value terms.

Time:                0            1            2            3             4              5

Cash flow    –$1,600   $720    $660     $700       $420      $220

PV @ 8%      –$1,500   $667    $566     $556       $309        $150

Payback period = 667/667 + 566/566 + (1500-667-566)/479 = 2.48 years

Payback period = Approximately 2.48 years

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