Discounted payback: Bendigo Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company's discount rate for such projects is 14 percent. What is the project's discounted payback period?

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The discounted payback period is the amount of time it takes for the present value of the cash flows from a project to equal the initial investment. In this case, the initial investment is $10 million and the discount rate is 14%. The present value of the cash flows is calculated as follows:Year 1: $1,045,000 / (1 + 0.14)^1 = $916,666.67Year 2: $2,550,000 / (1 + 0.14)^2 = $2,017,543.86Year 3: $4,125,000 / (1 + 0.14)^3 = $3,154,468.29Year 4: $6,326,750 / (1 + 0.14)^4 = $4,320,754.46Year 5: $7,000,000 / (1 + 0.14)^5 = $4,649,644.23The total present value of the cash flows is $14,058,077.51. This is greater than the initial investment of $10 million, so the project has a positive net present value. The discounted payback period is the amount of time it takes for the present value of the cash flows to equal the initial investment. In this case, the discounted payback period is 4.2 years.

Discounted Payback: Bendigo Energy Company Is Installing New Equipment at a Cost