contestada

A project has an initial cost of $18,400 and produces cash inflows of $7,200, $8,900, and $7,500 over three years, respectively. What is the discounted payback period if the required rate of return is 16 percent? A. 2.31 years B. 2.45 years C. 2.55 years D. 2.62 years E. never

Respuesta :

pedrocarratore

Answer:

E. never

Explanation:

Initial cost = $18,400

Year 1 cash inflows = $7,200

Year 2 cash inflows = $8,900

Year 3 cash inflows = $7,500

Return rate = 16%

First, find the present value of each year's cash inflow at a required rate of return of 16% and add them to find the total present value:

[tex]PV_1 = \frac{\$7,200}{1.16}=\$6,206.90\\PV_2 = \frac{\$8,900}{1.16^2}=\$6,614.15\\PV_3 = \frac{\$7,500}{1.16^3}=\$4,804.93\\PV = PV_1+PV_2+PV_3\\PV =\$6,206.90+\$6,614.15+\$4,804.93\\PV=\$17,625.98[/tex]

Since present value is lower than the initial cost ($18,400), the company does not reach the break-even point, and since there were not given any future cash inflows, the payback period is never.