If the cash flows for project Z are C₀ = -1,000; C₁ = 600; C₂ = 720; and C₃ = 2,000, calculate the discounted payback period for the project at a discount rate of 20 percent. A)1 year B)2 years C)3 years D)3 years

Question

If the cash flows for project Z are C₀ = -1,000; C₁ = 600; C₂ = 720; and C₃ = 2,000, calculate the discounted payback period for the project at a discount rate of 20 percent. A)1 year B)2 years C)3 years D)>3 years

Quizplus · Accepted Answer

First, we need to find the present value of each cash flow. Using a discount rate of 20%, the present value of each cash flow is: PV(C₀) = -1,000/1.2^1 = -833.33 PV(C₁) = 600/1.2^2 = 416.67 PV(C₂) = 720/1.2^3 = 450 PV(C₃) = 2,000/1.2^4 = 947.87 Next, we need to calculate the cumulative present value of the cash flows. We can do this by adding up the present values starting from year 1 and continuing until the cumulative present value is greater than or equal to 0. Cumulative PV Year 1 = -833.33 Cumulative PV Year 2 = -833.33 + 416.67 = -416.67 Cumulative PV Year 3 = -833.33 + 416.67 + 450 = 33.33 Cumulative PV Year 4 = -833.33 + 416.67 + 450 + 947.87 = 981.21 The discounted payback period is the time it takes for the cumulative present value to equal 0 or more. In this case, it takes 2 years for the cumulative present value to reach 0, so the discounted payback period is 2 years.

If the Cash Flows for Project Z Are C0 =

If the Cash Flows for Project Z Are C₀ =