A company is considering a 5-year project with an initial investment of $90,000.Cash inflows will be $30,000 for the first two years and $25,000 for the next 3 years.If the company's required rate of return is 12%, determine its discounted payback.
A)3.40 years
B)3.60 years
C)3.80 years
D)4.00 years

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the present value of the cash inflows to equal the initial investment. In this case, the present value of the cash inflows is:PV = $30,000/(1+0.12)^1 + $30,000/(1+0.12)^2 + $25,000/(1+0.12)^3 + $25,000/(1+0.12)^4 + $25,000/(1+0.12)^5 = $84,027.68Therefore, the discounted payback period is:DPP = 5 years - ($90,000 - $84,027.68)/$25,000 = 3.40 years

A Company Is Considering a 5-Year Project with an Initial