Scott is considering a project that will produce cash inflows of $2,900 a year for 3 years. The required rate of return is 15.4 percent and the initial cost is $6,800. What is the discounted payback period?
A) Never
B) .91 years
C) .26 years
D) 1.28 years
E) 1.39 years

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the present value of cash inflows to equal the initial investment. In this case, the present value of the cash inflows over 3 years at a 15.4% discount rate does not cover the initial cost of $6,800, so the project never pays back.

Scott Is Considering a Project That Will Produce Cash Inflows