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

	a.	3.50 years
	b.	4.00 years
	c.	3.43 years
	d.	3.57 years
	e.	3.00 years