How do you calculate the discounted payback using the cash flows of an investment project?
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Calculating discounted payback. An investment project has annual cash inflows of $6,500, $7,000, $7,500, and $8,000, and a discount rate of 14%. What is the discounted payback period for these cash flows if the initial cost is $8,000? What if the initial cost is $13,000? What if it is $18,000?
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The solution explains how to determine the discounted payback period with step-by-step discussion, calculations and answers.
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In discounted payback we use the discounted cash flows. Given the discounting rate of 14%, we first calculate the discounted values for cash inflows
Year 1- inflow is 6,500 and discounted value is 6,500/1.14 = 5,702
Year 2 - inflow is 7,000 and the discounted value is 7,000/1.14^2 = 5,386
Year 3 - Inflow is 7,500 and the discounted value is ...
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