Given the following cash flows for project Z: C0 = -1,000, C1 = 600, C2 = 720 and C3 =
2000, calculate the discounted payback period for the project at a discount rate of 20%.
A) 1 year
B) 2 years
C) 3 years
D) None of the above

Question

Quizplus · Accepted Answer

Discounted cash flows:
C0 = -1000
C1 = 500
C2 = 480
C3 = 1333.33

Using the formula for discounted payback period:
Payback period = Year before full recovery + (Unrecovered cost at start of year / Cash flow during year)

Year before full recovery = 2
Unrecovered cost at start of year 3 = 1200
Cash flow during year 3 = 2000

Payback period = 2 + (1200/2000) = 2.6 years

Since the discounted payback period is between 2 and 3 years, the closest option is B) 2 years.

Given the Following Cash Flows for Project Z: C0 =