A 30 year project is estimated to cost $35 million dollars and provide annual cash ﬂows of $5 per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the
Company's required rate of return is 10%, determine the discounted payback for the project.
A) 15.90 years
B) 13.90 years
C) 11.90 years
D) 9.90 years
E) 7.90 years

Question

Quizplus · Accepted Answer

The discounted payback period is the number of years it takes for the present value of the cash flows to equal the initial investment. In this case, the initial investment is $35 million and the present value of the cash flows is:PV = $5 * (1 - (1 + 0.1)^-5) / 0.1 + $4 million * (1 - (1 + 0.1)^-15) / 0.1 + $2 million * (1 - (1 + 0.1)^-10) / 0.1 = $32.7 millionTherefore, the discounted payback period is:DPP = 35 / 32.7 * 5 = 15.90 years

A 30 Year Project Is Estimated to Cost $35 Million