Exhibit 8-1
The cash flows associated with an investment project are as follows:

-Refer to Exhibit 8-1.If a firm uses discounted payback with a 15% discount rate and a 3-year cutoff period,what's the discount payback period of the project? Should the firm accept the project?

Question

Exhibit 8-1
The cash flows associated with an investment project are as follows:
 
-Refer to Exhibit 8-1.If a firm uses discounted payback with a 15% discount rate and a 3-year cutoff period,what's the discount payback period of the project? Should the firm accept the project?

Quizplus · Accepted Answer

Cumulative PV at end of year 3 = 20,000/1.15 +30,000/1.15² + 30,000/1.15³ = 59,801 Cumulative PV at end of year 4 = 20,000/1.15 +30,000/1.15² + 30,000/1.15³ + 30,000/1.15⁴ = 76,954 By the end of year 4,the project produces a cumulative discounted cash flow of $76,954.Thus the project earns back the initial $70,000 at some point during the fourth year. (70,000 - 59,801)/(76,954 - 59,801)= 0.6 The discount payback period is 3.6 years.

Exhibit 8-1 the Cash Flows Associated with an Investment Project Are as Are