Nouvel An S.A. is considering a project that requires an initial investment of $51,000. It is expected to produce annual cash flows of $35,000, $25,000 and $15,000. What is the discounted payback period for this project if the discount rate is 12%?
A) approximately 1 year.
B) approximately 1.6 years.
C) approximately 2 years.
D) The project will never reach discounted payback.

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the present value of cash flows to cover the initial investment. Discounting the cash flows at 12%, the present values are approximately $31,250, $19,940, and $10,680. The cumulative discounted cash flows reach the initial investment of $51,000 between the second and third year, making the payback period approximately 2 years.

Nouvel an S