An investment with an initial cost of $16,000 produces cash flows of $5000 annually. If the cash flow is evenly spread out over the year and the firm can borrow at 10%, the discounted payback period is _____ years.
A) 4.55
B) 4.05
C) 3.20
D) 3.52

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the cash flows, discounted at the borrowing rate, to cover the initial investment. At a 10% discount rate, the present value of each $5000 cash flow is less than $5000, so it takes slightly more than 4 years to recover the $16,000 investment.

An Investment with an Initial Cost of $16,000 Produces Cash