Compute the discounted payback statistic for Project D if the appropriate cost of capital is 11 percent and the maximum allowable discounted payback is four years. (Do not round intermediate calculations and round your final answer to 2 decimal places. If the project does not pay back, then enter a "0" (zero).) Project D      Time:012345Cash flow:−$12,600$3,510$4,500$1,840$0$1,320Discounted payback period: ____.__years

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Asked Nov 20, 2019
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Compute the discounted payback statistic for Project D if the appropriate cost of capital is 11 percent and the maximum allowable discounted payback is four years. (Do not round intermediate calculations and round your final answer to 2 decimal places. If the project does not pay back, then enter a "0" (zero).)
 

Project D            
Time: 0 1 2 3 4 5
Cash flow: −$12,600 $3,510 $4,500 $1,840 $0 $1,320

Discounted payback period: ____.__years

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Expert Answer

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Step 1

Discounting payback period describes the time period the investment will take to cover the initial investment cost.

The formula to calculate payback period is given below:

В
Payback period = A +
С
Here
A is the extreme period in which cumulative cash flow is negative.
B is the cumulative cash flow in period A (ignoring any negative sign)
C is the cash flow occured in the period after A
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В Payback period = A + С Here A is the extreme period in which cumulative cash flow is negative. B is the cumulative cash flow in period A (ignoring any negative sign) C is the cash flow occured in the period after A

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Step 2

The table below shows the cash inflow for each year and cumulative cash flows for project A.

Cumulative cash
Year
Year cash
Discount factor
Present value
flow
-Year
flow
(1+11%)
-$12,600
$3,510
$4,500
$1,840
$0
$1,320
-$12,600
$3,162.16
$3,652.30
$1,345.39
-$12,600
-$9,437.84
-$5,785.54
-$4,440.15
-$4,440.15
-$3,656.80
1
1.
0.9009
2
0.81162
0.73119
4
0.65873
0
$783.35
0.59345
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Cumulative cash Year Year cash Discount factor Present value flow -Year flow (1+11%) -$12,600 $3,510 $4,500 $1,840 $0 $1,320 -$12,600 $3,162.16 $3,652.30 $1,345.39 -$12,600 -$9,437.84 -$5,785.54 -$4,440.15 -$4,440.15 -$3,656.80 1 1. 0.9009 2 0.81162 0.73119 4 0.65873 0 $783.35 0.59345

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Step 3

From the table, it can be concluded that cumulative cash flow did not become zero before 4th year and the ma...

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Discounted Cash Flow Analysis

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