An investment with an initial cost of $15,000 produces cash flows of $5,000 annually for 5 years. If the cash flow is evenly spread out over the year and the firm can borrow at 10%,the discounted payback period is _____ years.
A) 3
B) 3.2
C) 3.75
D) 4
E) 5

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the present value of cash flows to cover the initial investment. Discounting the $5,000 annual cash flows at 10% for each year, the cumulative present value reaches $15,000 between the 3rd and 4th year, specifically at 3.75 years.

An Investment with an Initial Cost of $15,000 Produces Cash