Asked Nov 7, 2019

Judson's cost of capital is 12%, what is the DISCOUNTED Payback Period for the project?

Year Cash Flow in $
0 ($1000)
1 400
2 400
3 600

Expert Answer

Step 1

Discounted payback period is calculated by finding the present value of all the cash flows and then using the cumulative cash flow method to determine the number of years it will take to repay the investment.

Please refer to the whiteboard for the calculation


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A В C Е 1 Year Cash Flows Preset Value facor@12% Discounted Cash Flow (B C) Cumulative Cash Flow O S-1,000.00 -1,000.00 S 357.142857142857 S -642.857142857143 318.877551020408S 427.068148688047 S 1S 0.892857142857143 S 0.797193877551020 $ 0.711780247813411 $ -1,000.00 2 400.00 3 2S 3 S 400.00 -323.979591836735 4 600.00 103.0885568513 12

Step 2

Excel Workings:


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A В C D Е 1 Year Cash Flows Preset Value facor@12% Discounted Cash Flow (B C) Cumulative Cash Flow =B2*C2 |-Bз*С3 ЕB4*C4 =B5*C5 -1000 400 400 600 1/1.12 0 - 1 / 1.12 1 - 1 / 1.12 2 - 1 / 1.12 3 =D2 =E2+D3 =E3+D4 -E4+D5 2 0 3 1 4 2 5 3

Step 3

Last Period with negative discounted cumulative cash flow is “A”.

Absolute value of the discounted cumulative cash flow at the end of pe...


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Discounted Payback period = A+ 323.979591836735 2 427.068148688047 2+0.758613333333333 2.758613333333333 or 2.76 years


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