An investment project costs $21,500 and has annual cash flows of $6,500 for 6 years.If the discount rate is 15 percent,what is the discounted payback period?
A)4.41 years
B)4.91 years
C)5.12 years
D)5.40 years
E)never

Question

Quizplus · Accepted Answer

The discounted payback period is the time it takes for the discounted cash flows to pay back the initial investment. To find this, we discount each annual cash flow by the discount rate (15% in this case) and then cumulatively add these discounted cash flows until they equal or exceed the initial investment of $21,500. The calculation shows that the discounted payback period falls between the 4th and 5th year, specifically closer to 4.91 years, as this is when the cumulative discounted cash flows cover the initial investment.

An Investment Project Costs $21,500 and Has Annual Cash Flows