Problem 13-7 Discounted Payback (LG13-2)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 and round your final answer to 2 decimal places.) Project C      Time:012345Cash flow:–$1,400$640$600$640$380$180      Should the project be accepted or rejected?  acceptedrejected

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Asked Dec 5, 2019
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Problem 13-7 Discounted Payback (LG13-2)

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 and round your final answer to 2 decimal places.)

 

Project C            
Time: 0 1 2 3 4 5
Cash flow: –$1,400 $640 $600 $640 $380 $180
 

 

 

 

 

 

Should the project be accepted or rejected?

 

 

  • accepted
  • rejected

 

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Expert Answer

Step 1

Calculation of Discounted Payback Period:

The discounted payback period is 2.53 years.

Excel Spreadsheet:

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A D Cash Flows FVIF @ 7% PV of Cash Flows Discounted Cash Flows (S1,400) Year (S1,400) (S1,400) ($801.87) (S277.81) 2 1.0000 $640 3 1.0700 $598.13 S600 1.1449 $524.06 4 $640 $244.62 3 1.2250 $522.43 $380 1.3108 $289.90 $534.52 4 $180 $128.34 $662.86 1.4026 Discounted Payback Period 2.53 8.

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Step 2

Excel Workings:

...
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A B D 1 Year Cash Flows FVIF @ 7% PV of Cash Flows Discounted Cash Flows |-1400 640 600 640 380 =(1+7%)^A2 =B2/C2 =(1+7%)^A3 =B3/C3 =(1+7%)^A4 =B4/C4 =(1+7%)^A5 =B5/C5 =(1+7%)^A6 =B6/C6 =(1+7%)^A7 =B7/C7 Discounted Payback Period =A4-(E4/D5) =D2 =E2+D3 =E3+D4 =E4+D5 =E5+D6 =E6+D7 2 0 3 1 4 2 6 4 180

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