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Calculating Payback and discounted Payback Period

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A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's payback period and discounted payback?

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Solution Summary

Solution describes the steps for calculating payback and discounted payback period for a project.

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Please refer attached Excel file for better understanding of formula used.

Solution

Net cash inflows are uniform of $ 12000 per year.

Payback will be =Initial outlay/Annual cash inflow = 52125/12000=4.34375 years
Discounted Pay back period

Year Cash inflow PV Factor ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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