Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years. The project has a 12 percent required rate of return and an initial cost of $5,000. What is the discounted payback period?
A)2.97 years
B)3.11 years
C)3.26 years
D)4.38 years
E)never

Question

Quizplus · Accepted Answer

The discounted payback period is the amount of time it takes for the present value of the cash inflows to equal the initial cost of the project. In this case, the present value of the cash inflows is $5,000 * (1 - (1 + 0.12)^-4) / 0.12 = $3,607.42. Therefore, the discounted payback period is 3.60742 / 2100 = 2.97 years.

Scott Is Considering a Project That Will Produce Cash Inflows