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A firm with a 13 percent cost of capital is considering a project for this year’s...

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Finance

A firm with a 13 percent cost of capital is considering aproject for this year’s capital budget. The project’s expectedafter-tax cash flows are as follows:

Year:

0

1

2

3

4

Cash flow:

-$8,000

$3,100

$3,000

$2,700

$3,900


Calculate the project’s discounted paybackperiod.

a.

3.50 years

b.

4.00 years

c.

3.43 years

d.

3.57 years

e.

3.00 years

Answer & Explanation Solved by verified expert
4.1 Ratings (595 Votes)

Ans c) 3.43 years

Year Project Cash Flows (i) DF@ 13% (ii) PV of Project A ( (i) * (ii) ) Cumulative Cash Flow
0 -8000 1                             (8,000.00)                (8,000.00)
1 3100 0.885                              2,743.36                (5,256.64)
2 3000 0.783                              2,349.44                (2,907.20)
3 2700 0.693                              1,871.24                (1,035.96)
4 3900 0.613                              2,391.94                 1,355.98
NPV                              1,355.98
Discounted Payback Period = 3 years + 1035.96 / 2391.94
3.43 years

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Transcribed Image Text

A firm with a 13 percent cost of capital is considering aproject for this year’s capital budget. The project’s expectedafter-tax cash flows are as follows:Year:01234Cash flow:-$8,000$3,100$3,000$2,700$3,900Calculate the project’s discounted paybackperiod.a.3.50 yearsb.4.00 yearsc.3.43 yearsd.3.57 yearse.3.00 years

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