Answer:
Discounted payback period = 1.89 years
Explanation:
If Initial cost is $5,200
Year Cash flow Present value Present value Discounted
at 11% Cumulative cash flow
0 -5,200 1 -5,200 -5,200
1 2,800 0.9009 2,523 -2,677
2 3,700 0.811 3,003 326
3 5,100 0.73126 3,729 4,055
4 4,300 0.6587 2,833 6,887
Discounted payback period = 1 + (2,667/3003)
=1.89 years
Working
PV= (1+i)^-n
i= 11%, n= respective years 0,1,2,3,4
The discounted payback period is the time taken to recover the initial cost of the investment. It determines the time period taking into consideration that is equal to the discounted value of expected cash flows for each year.
The discounted payback period is 1.89 years.
Computation:
Given,
annual cash flows of 4 years
initial cost =$5,200
discount rate =11%
The discounted payback period is computed as follows:
[tex]\text{Discounted payback period}=\text{year}+\dfrac{\text{Discounted cummulative cash flow}}{\text{Present value of next year}}\\\\=1\;\text{year}+\dfrac{-\$2,677.48}{\$3000.70}\\\\=1\;\text{year}+0.89\\\\=1.89\;\text{year}[/tex]
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