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    Payback and Discount payback

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    Payback and Discounted Payback

    A. A company is determining whether or not to invest in a project of limited duration. The cash flows that correspond to the project are as follows:

    Annual Cash Flows
    Year 1 $400,000
    Year 2 $400,000
    Year 3 $400,000
    Year 4 $400,000
    Year 5 $400,000

    The payback period has been determined to be three and one-half years. What is the amount of the initial investment?

    B. A company is determining whether or not to invest in a project of limited duration. The cash flows that correspond to the project are as follows:

    Annual Cash Flows
    Year 1 $300,000
    Year 2 $250,000
    Year 3 $100,000 (Total cumulative amount = $650,000)
    Year 4 $200,000
    Year 5 $250,000

    The initial investment required to start this project is $700,000.

    1) What is the payback period?

    2) What is the discounted payback period, assuming that the required cost of capital is 10 percent? (Round your cumulative cash flows to the nearest whole number. Round your final answer to two decimal points.)

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    Payback and Discounted Payback

    A. A company is determining whether or not to invest in a project of limited duration. The cash flows that correspond to the project are as follows:

    Annual Cash Flows
    Year 1 $400,000
    Year 2 $400,000
    Year 3 $400,000
    Year 4 $400,000
    Year 5 $400,000

    The payback period has been determined to be three and one-half years. What is the amount of the initial investment?

    Payback period = Initial ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what is the amount of the initial investment.

    $2.19

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