16 September, 00:37

# Using the information provided below and assuming the cash flows occur at a constant rate each year, calculate the discounted payback period for Project BUndiscounted Free cash flow Discounted Free cash flow at 17% cumulative discounted free cash flowInitial Outlay (\$11,000) (\$11,000) (\$11,000)Cash flow Year 1 7,000 \$5,982.91 (\$5,017.09)2 4,000 \$2,922.05 (\$2,095.04)3 3,000 \$1,873.11 (\$221.93)4 2,000 \$1,067.30 \$845.37A. 2.79B. 3.21C. 4.21.D. 3.9

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1. 16 September, 02:11
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B. 3.21

Explanation:

The Cumulative net present value (npv) as indicated in the question has been converted from negative to positive in Year 4, therefore we can assess that the Projected B has completed its pay back period during Year 4.

Based on above discussion, the discounted pay back period shall be calculated using the following way:

Discounted pay back period=3+Cumulative npv at Year 3/present value of Year 4 cash flow

Discounted pay back period=3 + (221.93/1067.30)

=3.21 years

So the answer is B. 3.21