Roswell 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? (Do not round intermediate computations. Round your answer to one decimal place.)

Question

Quizplus · Accepted Answer

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 initial investment is $10 million. The present value of the cash flows is calculated as follows:PV = $1,045,000/(1.14^1) + $2,550,000/(1.14^2) + $4,125,000/(1.14^3) + $6,326,750/(1.14^4) + $7,000,000/(1.14^5) = $10,000,000Therefore, the discounted payback period is 5 years.

Roswell Energy Company Is Installing New Equipment at a Cost