Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: Year 0 Cash flows -$1,225 a. 3.37 years b. 3.63 years c. 1.12 years d. 2.63 years e. 2.37 years 8.75% 1 $575 2 $535 3 $495 4 $455
Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: Year 0 Cash flows -$1,225 a. 3.37 years b. 3.63 years c. 1.12 years d. 2.63 years e. 2.37 years 8.75% 1 $575 2 $535 3 $495 4 $455
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Masulis Inc. Discounted Payback Period Calculation**
Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
**WACC: 8.75%**
| Year | 0 | 1 | 2 | 3 | 4 |
|------|------|------|------|------|------|
| Cash flows | -$1,225 | $575 | $535 | $495 | $455 |
**Options:**
a. 3.37 years
b. 3.63 years
c. 1.12 years
d. 2.63 years
e. 2.37 years
For calculating the discounted payback period, each cash flow needs to be discounted back to its present value using the discount rate (WACC).
**Step-by-Step Calculation Process:**
1. Identify the initial investment and subsequent cash flows.
2. Apply the discount rate to each cash flow to find its present value.
3. Compute the cumulative cash flow for each year.
4. Determine the point in time when the cumulative cash flow turns positive.
The discounted payback period is then the time it takes for the sum of the discounted cash flows to repay the initial investment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F13ffb487-410c-4808-947c-8212d0ee5563%2Fb34c6e6a-75c5-4524-a62d-6613c0857f26%2Fncaxoxa_processed.png&w=3840&q=75)
Transcribed Image Text:**Masulis Inc. Discounted Payback Period Calculation**
Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
**WACC: 8.75%**
| Year | 0 | 1 | 2 | 3 | 4 |
|------|------|------|------|------|------|
| Cash flows | -$1,225 | $575 | $535 | $495 | $455 |
**Options:**
a. 3.37 years
b. 3.63 years
c. 1.12 years
d. 2.63 years
e. 2.37 years
For calculating the discounted payback period, each cash flow needs to be discounted back to its present value using the discount rate (WACC).
**Step-by-Step Calculation Process:**
1. Identify the initial investment and subsequent cash flows.
2. Apply the discount rate to each cash flow to find its present value.
3. Compute the cumulative cash flow for each year.
4. Determine the point in time when the cumulative cash flow turns positive.
The discounted payback period is then the time it takes for the sum of the discounted cash flows to repay the initial investment.
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