Consider the following four-year project.The initial outlay or cost is $210,000.The respective cash inflows for years 1,2,3 and 4 are: $100,000,$80,000,$80,000 and $20,000.What is the discounted payback period if the discount rate is 11%?
A)About 1.667 years
B)About 2.000 years
C)About 2.427 years
D)About 2.94 years

Question

Quizplus · Accepted Answer

The discounted cash flows for each year are calculated using the formula: Cash Flow / (1 + discount rate)^year. The cumulative discounted cash flows are then summed until they equal or exceed the initial outlay. The discounted payback period is the time it takes for these cumulative discounted cash flows to equal the initial investment. In this case, it is about 2.94 years.

Consider the Following Four-Year Project